Auto Dealer Bond
In most states, an auto dealer bond is required when seeking licensure to operate an auto dealership or other type of motor vehicle dealership. The bond is designed to protect the state and potential customers from dealerships that commit fraud. Typically, this bond is required as part of the auto dealer vehicle registration process. Let's take a closer look at auto dealer bonds and how they can help you run a successful motor vehicle dealer business.
What is an Auto Dealer Surety Bond?
An auto dealer surety bond is a government-required license surety bond that serves to protect the public. Also known as a dealership surety bond or a car dealer surety bond, it provides a path for recourse should an auto dealer violate licensing laws, rules, or regulations. Most states require auto dealers to purchase the surety bond, also called a motor vehicle dealer bond.
To understand how these types of surety bonds work, let's look at the three parties involved:
- The obligee is the entity, agency, or individual that requires the bond. Typically, the state where you plan to establish your car dealership requires the auto dealer bond as protection for their citizens.
- The principal is the person who needs surety bond coverage. This is you, the auto dealer, in this case.
- The surety serves as the underwriter of the auto dealer bond.
These three parties work together to ensure that motor vehicle dealerships operate legally and ethically, providing peace of mind to the public.
How Does a Car Dealer Surety Bond Work?
An auto dealer bond covers damages related to illegal acts committed by a motor vehicle dealer. Unlike other forms of insurance a car dealer takes out to protect their business, a dealership surety bond protects your customer base and creditors. It does this by providing a process whereby a claimant can seek monetary compensation if you fail to meet your responsibilities.
Those who can file a claim against an auto dealer bond include:
- Consumers who purchase from the dealership
- Sellers who sell inventory vehicles to the dealer
- Lenders who provide the dealer with financing
- Creditors who finance the dealer's inventory
- State regulators who issue the dealer's license
Common causes for claims against auto dealer bonds include:
- Misrepresentations of a vehicle's condition when it is sold
- Failure to provide a valid car title when the vehicle is sold
- Failure to pay state sales tax on vehicles sold
- Selling stolen vehicles
- Failure to report a vehicle sale
The claims process against an auto dealer bond starts with the dealer. First, the customer or creditor contacts the dealer with their complaint. The dealer should then thoroughly investigate the complaint and work to reach a resolution. If the claimant is unsatisfied with the dealer's efforts, they then contact the surety that underwrote the car dealer surety bond to file a claim. The surety, then investigates the complaint, contacting both the claimant and the dealer.
If the surety concludes the claim is without merit, they will dismiss the investigation and the claim. However, if the surety finds the claim is valid, they will pay out money to the claimant from the auto dealer bond, up to the bond's full value. At this point, the dealer must repay the surety for the money paid out to continue business operations.
The auto dealer bond claim process ensures that customers and creditors alike are protected. Most states offer searchable online databases of licensed, bonded vehicle dealers, so consumers know upfront they are safe when doing business with those dealers.
Types of Auto Dealer Bonds
Depending on the type of vehicles you plan to sell, you may need to file one of several dealership surety bond types, including:
- RV bonds
- Used car dealer bonds
- Wholesale dealer bonds
- Motorcycle dealer bonds
- MVD bonds
All these auto dealer bonds operate in the same basic way. If a dealer commits fraud or conducts unethical business practices, the wronged party can make a claim and receive compensation from the surety company.
Required car dealer surety bond amounts vary depending on the state, the motor vehicle dealer classification, and the number of units sold previously or projected to be sold. If your licensed business is required to have an auto dealer bond, typically, you must maintain the bond for as long as the license is in use. Dealership surety bonds are annually renewable.
Viking Bond Service has got you covered no matter what type of auto dealer bonds your business needs. Rely on us to provide fast quotes for all the dealer surety bond types listed above. We are also happy to answer all your questions about auto dealer bonds in any state, so please contact us at your convenience.
Who Needs an Auto Dealer Surety Bond?
As a general rule of thumb, anyone who plans to sell automobiles or other motorized vehicles as their business or as a substantial source of income will need an auto dealer bond – it is required to get a license. Failure to obtain the bond makes getting an auto dealer license impossible, just as a lapse in bond coverage will invalidate the license. There can be strict penalties for operating without a license – including the permanent loss of the license. So anyone who needs an auto dealer bond should seek one out ASAP.
Car Dealer Surety Bond Requirements
Every state has its laws and regulations governing auto dealer bonds. Requirements vary from state to state and within states, depending upon the type and volume of vehicles you sell. You'll want to research the car dealer surety bond requirements for each state where you intend to do business.
How to Obtain an Auto Dealer Bond
Getting an auto dealer bond is easier than you might expect. First, you will need to gather data from everyone with an ownership stake in the business. You may also need to find information or secure documentation that you don't have immediately on hand – another reason it's important to get the bonding process started sooner rather than later. Once you're ready to seek out an auto dealer bond, prepare to meet these requirements:
- Fill out a standard bond application with information about your financial situation, background, and business.
- Submit to a credit check.
- Supply a copy of the surety bond requirements.
- Give the surety any other documents it requests.
Underwriters will use the application information to quote a price for the auto dealer bond. Bond coverage activates once the premium has been paid. The surety will then supply a document to prove your bond coverage.
How to Renew an Auto Dealer Bond
Most auto dealer bonds must be renewed every 12 months. If the bond lapses, it invalidates the auto dealer's license, which makes it illegal to continue selling vehicles. A motor vehicle dealer needs to have a bond throughout every minute their business is open. This means renewing promptly and never allowing it to lapse. Renewal works very similarly to the initial application.
First, fill out a new dealer surety bond application with updated details about your business and finances. Next, you will undergo another credit check. Underwriters will adjust the premium price up or down based on what they discover about changes to your credit standing since the last bond approval. Paying the new premium renews the bond for another 12 months. Viking Bond Service takes a proactive approach – reminding you early and often when your auto dealer bond needs to be renewed, making that process fast and easy.
Auto Dealer Surety Bond Cost
Since many factors go into determining the premium price on a car dealer bond, there is no fixed amount on a surety bond cost. As with most surety bond types, auto dealer bond rates depend on the principal's qualifications. Different states have different bond requirements, and variables like your credit, bonding history, and business type can affect the premium.
The surety assesses the likelihood of a claim being made. You are charged a percentage of the auto dealer bond amount accordingly. The typical price for these bonds nationally is anywhere from 1% to 5% of the required bond amount, and quotes can and do come in lower and higher than that range. Your credit standing affects the bond's pricing, so usually, the better the credit, the better the quote will be.
Viking Bond Service, Inc is committed to providing surety opportunities to businesses of all types. For those with mixed credit backgrounds, we offer a poor credit surety bond program, and we work to provide the lowest premiums possible to all of our clients. These quotes are often higher than they would be with clean credit and may require collateral.
No matter what your surety bond needs are, our auto dealer bond experts are happy to help you every step of the way. We cannot guarantee that you will be approved for a bond. That being said, if you have been turned down for a surety bond elsewhere, we encourage you to apply with us instead. We take great pride in getting more people approved for the bonds they need, whether auto dealer bonds or otherwise.
Viking Bond Service, Inc. is your superior, surety solution whether you're newly licensed or an experienced auto dealer. As a surety bond industry leader, we can handle any sized project in a way that other auto dealer surety bond providers can't match. No wonder vehicle dealers across the country choose us as their long-term bond partner. Discover what so many others already have: Viking Bond Service makes bonding simple and stress-free for all surety bond types. Reach out to one of our experts to see the difference for yourself!
Request an Auto Dealer Bond Quote Today
Don't wait to secure your auto dealer bond. Get a free quote from Viking Bond Service by filling out this simple form. There is no obligation when you request a quote – just essential information your business needs. We're happy to answer your questions. Contact us at your convenience, or call us at 1-888-2-SURETY (1-888-278-7389).
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Frequently Asked Questions About Motor Vehicle Dealer Bonds
According to data from 2016, there are 16,708 franchised dealers selling new vehicles in America and over 139,000 businesses selling used cars. In the vast majority of cases, each of these dealers is required to have an auto dealer bond. These quick FAQs cover everything you need to know about this critical type of bond.
How Long Does it Take to Obtain an Auto Dealer Bond?
Do I Need Collateral For an Auto Dealer Bond?
When and How Do I Renew My Auto Dealer Bond?
Can I Get a Lower Rate on an Auto Dealer Bond With Poor Credit?
How Are Claims Handled for Auto Dealer Bonds?
How Can I Save Money on an Auto Dealer Bond?
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