Auto Dealer Bonds

At Surety Bonds Agent, we offer a full range of surety bonds nationwide through an extended carrier network. Continue below to learn more about auto dealer bonds. If you have additional questions or want to explore bonding solutions for your business, speak with one of our knowledgeable surety bond experts today.

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FREE AUTO DEALER BOND QUOTE

What Are Auto Dealer Bonds?

Auto dealer bonds are categorized as license and permit surety bonds, because purchasing one is a requirement for obtaining a new auto dealer license or renewing an expiring license. They are intended to ensure that auto dealers do business in accordance with all state laws and regulations governing the sale of motor vehicles, new or used. Thus, they protect a state against liability for having issued a license to an auto dealer whose actions cause financial harm to a consumer. They also protect consumers by providing a source of funds for compensating them for such financial harm.

Who Needs Them?

Some states require only dealers who sell used vehicles to be bonded, while others also require dealers selling new vehicles to purchase an auto dealer bond. There are also state-to-state differences as to whether dealers who sell vehicles on a wholesale basis need to be bonded or only retail dealers. Additionally, the definition of “motor vehicle” also varies by state, with some states including not only cars, trucks and motorcycles, but also mobile homes, manufactured homes, and certain types of trailers within the bonding requirement.

How Do They Work?

One thing that all auto dealer bonds have in common is that the surety bond agreement is a legally binding contract among three parties: the obligee, the principal, and the surety. 

  • The obligee is the state’s motor vehicle department or other state agency that issues motor vehicle licenses. The obligee establishes the required bond amount (the bond’s penal sum) and the terms of the surety bond agreement.
  • The principal is the auto dealer required to purchase the bond and legally obligated to pay valid claims against it.
  • The surety is the company underwriting and issuing the bond.

When a claim is filed against an auto dealer bond by someone who suffered a financial loss because of the dealer’s unlawful or unethical sales practices, the surety will first determine whether the claim is valid and should be paid. While the terms of the surety bond agreement legally obligate the principal to pay all valid claims, the surety usually pays a valid claim on behalf of the principal, who must then reimburse the surety.

There are good reasons for this arrangement. It ensures that the claimant receives prompt payment, and it allows the principal to repay the debt over a certain period of time rather than having to come up with a large sum all at once. 

What Do They Cost?

Auto dealer bonds are subject to underwriting because the surety is, in effect, agreeing to extend credit to the principal by paying claims on the principal’s behalf. That carries the risk of nonpayment and perhaps having to take legal action against the principal to obtain reimbursement. 

Consequently, the underwriters’ primary concern in setting the premium rate is the principal’s personal credit score. The higher the credit score, the lower the premium rate will be, potentially as low as 1% of the bond’s penal sum for those with excellent credit.

At Surety Bonds Agent, we offer a full range of surety bonds nationwide through an extended carrier network. Continue below to learn more about auto dealer bonds. If you have additional questions or want to explore bonding solutions for your business, speak with one of our knowledgeable surety bond experts today.

CONTACT US FOR A

FREE AUTO DEALER BOND QUOTE

What Are Auto Dealer Bonds?

Auto dealer bonds are categorized as license and permit surety bonds, because purchasing one is a requirement for obtaining a new auto dealer license or renewing an expiring license. They are intended to ensure that auto dealers do business in accordance with all state laws and regulations governing the sale of motor vehicles, new or used. Thus, they protect a state against liability for having issued a license to an auto dealer whose actions cause financial harm to a consumer. They also protect consumers by providing a source of funds for compensating them for such financial harm.

Some states require only dealers who sell used vehicles to be bonded, while others also require dealers selling new vehicles to purchase an auto dealer bond. There are also state-to-state differences as to whether dealers who sell vehicles on a wholesale basis need to be bonded or only retail dealers. Additionally, the definition of “motor vehicle” also varies by state, with some states including not only cars, trucks and motorcycles, but also mobile homes, manufactured homes, and certain types of trailers within the bonding requirement.

One thing that all auto dealer bonds have in common is that the surety bond agreement is a legally binding contract among three parties: the obligee, the principal, and the surety. 

  • The obligee is the state’s motor vehicle department or other state agency that issues motor vehicle licenses. The obligee establishes the required bond amount (the bond’s penal sum) and the terms of the surety bond agreement.
  • The principal is the auto dealer required to purchase the bond and legally obligated to pay valid claims against it.
  • The surety is the company underwriting and issuing the bond.

When a claim is filed against an auto dealer bond by someone who suffered a financial loss because of the dealer’s unlawful or unethical sales practices, the surety will first determine whether the claim is valid and should be paid. While the terms of the surety bond agreement legally obligate the principal to pay all valid claims, the surety usually pays a valid claim on behalf of the principal, who must then reimburse the surety.

There are good reasons for this arrangement. It ensures that the claimant receives prompt payment, and it allows the principal to repay the debt over a certain period of time rather than having to come up with a large sum all at once. 

Auto dealer bonds are subject to underwriting because the surety is, in effect, agreeing to extend credit to the principal by paying claims on the principal’s behalf. That carries the risk of nonpayment and perhaps having to take legal action against the principal to obtain reimbursement. 

Consequently, the underwriters’ primary concern in setting the premium rate is the principal’s personal credit score. The higher the credit score, the lower the premium rate will be, potentially as low as 1% of the bond’s penal sum for those with excellent credit.

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Request a quote online or call today to speak with one of our surety bond experts about obtaining the auto dealer bond you may need in order to operate a dealership in your state.