Texas Auto Dealer Bond
A motor vehicle dealer bond is a type of license surety bond. All auto dealers in Texas, except those who are franchised, are required by the state to purchase a Texas motor vehicle dealer bond. These bonds help protect car buyers in Texas by providing them with a form of recourse should the dealer break their contractual agreement.
What is a Texas Auto Dealer Bond?
A bond is a form of financial guarantee. If a Texas auto dealer violates the state laws and codes of conduct for auto sales, the person who was negatively affected - by purchasing a vehicle with the odometer rolled back, for example - can file a claim against the bond seeking compensation. As long as the claim is valid, the surety company guarantees it will be paid and the offending auto dealer will be held financially responsible. By holding them responsible, bonds discourage auto dealers from breaking any rules and build trust in auto dealers throughout Texas.
How does a Texas Auto Dealer Bond work?
If someone suspects an auto dealer hasn't lived up to their legal or contractual obligations while conducting business, that person has the right to file a claim against the Texas auto dealer surety bond seeking financial compensation equal to the damages. As long as the claim proves valid, the surety company that issues the bond agrees to settle it, even if the auto dealer won't. However, the bonded party (meaning the auto dealer) must pay the surety company back afterwards, usually with interest and fees added.
Who should get a Texas Auto Dealer Bond?
Texas has strict rules when it comes to licensing used car dealers in the state. One of these rules is that all dealers, unless they are franchised, must buy and maintain an auto dealer bond. If you are looking to become an auto dealer or you're already a licensed motor vehicle dealer you need a Texas motor vehicle dealer bond.
Who are the parties involved in a Texas Auto Dealer Bond?
An auto dealer surety bond will involve three parties:
- The principal: this is the Texas based auto dealer. The principal must obtain the bond, renew it as necessary, and pay for any claims filed against the bond.
- The obligee: for Texas auto dealer bonds this is the state. The state will file claims against the bond on behalf of aggrieved parties and disburse the financial settlement.
- The surety: the underwriter of the bond. A surety will settle a claim on behalf of the principal, but the principal must pay the debt back.
How much does a Texas Auto Dealer Bond cost?
The cost of the bond is calculated based on the bond amount (which in Texas is $50,000) and the deemed risk of the bond. The bonding company will assess how likely it is that a claim will be placed against the bond based on the supporting paperwork you submit with your application. This means that applicants with higher credit scores, stable financials, and stronger business resumes will receive lower quotes. The typical price range quoted is 2% - 4% of the bond amount. Even if your credit score is low, Viking Bond Service can still help you to secure a Texas motor vehicle surety bond.
Can you get a Texas Auto Dealer Bond with bad credit?
The Texas auto dealer bond requirements do not include any rules dictating the credit of the principal. Whether or not someone with bad credit successfully obtains one of these bonds depends entirely on the underwriters. Some companies are more willing than others, which is why it helps to work with a nationwide surety brokerage like Viking Bond Service that has relationships with many surety companies, including ones that will forgive a low credit score or a past bankruptcy.
How do I renew my Texas Auto Dealer Bond?
A motor vehicle surety bond in Texas stays active for 12 months. You must renew it past that point to keep your auto dealer license valid and your business in positive legal standing. Renewing a bond is much like applying for one in the first place. You will submit financial information over again so that underwriters can reassess your credit risk and recalculate your bond premium accordingly. If your credit has improved in the last year, expect your premium to go down, but the opposite could also be true if your credit got worse. Be sure to budget for the cost of annual bond renewal, otherwise you put your business in jeopardy.
How are claims handled for Texas Auto Dealer Bonds?
With each claim, the surety launches a thorough investigation to determine whether the auto dealer is actually in the wrong. If so, and the principal refuses to pay anything to the obligee, the surety steps in to settle the claim up to the $50,000 value of the bond. At this point, the debt the principal owed to the obligee essentially transfers to the surety, who will add interest and the cost of the investigation to the bill. From the principal's perspective, it's always less expensive to avoid claims.
How to apply for a Texas Auto Dealer Bond?
Auto dealer bonds in Texas are obtained through a bonding company like Viking Bond Service. All applicants must complete an application form and supply the required supporting documentation. The supporting documents may include your businesses financials, resume, and a credit check. The bonding company will supply a premium quote and once the premium is paid and all paperwork is signed, you will be provided with the auto dealer bond.
Viking Bond Service - Get Your Business Running
Viking bond service is one of the premier auto dealer bond companies in Texas. We're here to help make the process fast, easy, and understandable. We've outlined the key points of Texas auto dealer surety bonds below. At Viking Bond Service we've built our business on friendly and efficient customer service. We make it quick and easy to apply for a bond by providing a premium quote for most Texas motor vehicle surety bond applications within 24 hours. Take just a few minutes to complete our online application whenever it's convenient for you. Or get more information and answers to all your questions by contacting us through the form on this page or at 888-278-7389.
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