Many types of businesses that deal with automobile sales and service are required to have surety bonds. These bonds help to protect customers and drivers while also holding companies in the auto industry accountable. Before they can obtain financing, businesses such as new and used car dealers, brokers, wholesalers, and auto parts dealers may need to purchase one of the various types of surety bonds.
Many Americans rely on their cars for almost every aspect of their daily lives. As a result, it’s critical that the vehicles that transport parents to work and children to school are sold and serviced by licensed, responsible businesses.
What are the most common types of surety bonds that a company in the auto industry should be aware of?
Surety Bonds for Automobile Dealers
Auto dealer bonds are the most common type of surety bond in the automotive industry. To obtain their auto dealer license, most states require that dealers obtain a surety bond. These bonds help protect vehicle buyers, suppliers, state taxpayers, and creditors from an auto dealer’s unethical or illegal behavior, such as:
- Falsifying information about a vehicle
- Failing to pay sales taxes on a vehicle transaction
- Failing to deliver a valid and genuine certificate of title to a vehicle buyer
For an auto dealer surety bond, each state has its own set of terms and bond amounts, and many states have slightly different bond types for different types of auto dealerships. Used car dealerships, new car dealerships, salvage car dealerships, and auto auctions are all classified differently. When buying an auto dealer surety bond, make sure to read the fine print.
Other Important Surety Bonds in the Automotive Industry
The most common type of auto industry surety bond is a motor vehicle dealer bond, but there are many others, including:
- Surety Bond for Automotive Dismantlers or Parts Recyclers: In a few states, salvage companies that dismantle cars for parts or recycle used auto parts are required to obtain a surety bond. These surety bonds are especially important because auto salvage businesses frequently handle hazardous materials that can harm the environment if improperly disposed of, and they may also have access to vehicle license plates and other materials that could be used for illegal purposes. As a result, before these businesses can obtain a business license, they must post an auto salvage surety bond.
- Title Company Surety Bond: Title companies assist other businesses, such as auto dealerships, and consumers in completing the paperwork required for a title transfer, which means they assume significant legal liability and must conduct themselves ethically. A surety bond for a title company ensures that the company is accountable to both its customers and the government. Only a few states require title company surety bonds, so double-check our list to see if yours is one of them.
- Certificate of Title Surety Bonds (also known as Bonded Title): In the event that a vehicle title is lost or damaged, many states require a surety bond. Dealers buying or accepting a trade-in for a used vehicle may encounter bonded titles, which act in place of a standard vehicle title for a set period of time (usually 3-5 years) to ensure that no other claims to the vehicle’s title can be made. The bond is usually filed with the DMV and should be kept on file by the owner and VIN, along with the expiration date.
- Motor or Automobile Club Surety Bond: Motor or automobile clubs, which are membership organizations that provide services to travelers and vehicle owners, are required by some states to have surety bonds. Automobile club surety bonds ensure that these businesses operate ethically and in accordance with state laws.
- Surety Bond for Driving Schools: Driving schools, particularly those that provide education for commercial driver’s licenses, must obtain surety bonds to safeguard clients in the event that the driving school engages in unethical behavior. These bonds may also guarantee that students will receive a refund of their tuition if the driving school goes out of business before they finish their classes.
Types of Auto Dealer Bonds
Depending on which state you want to do business in and what kind of automobiles you want to sell, there are a few different types of auto dealer bonds that may be necessary. The following are some of the most frequent types:
- Bond for a new car dealer
- Bond for a used car dealer
- Bond for mobile home dealers
Step-by-Step Instructions for Obtaining an Auto Dealer Bond
Determine Your Requirements – Most states, though not all, demand car dealer bonds in order to run a business. If you’re just getting started, choose your state from the map below to see what you’ll need.If you need assistance obtaining your license or bonds contact as at Bonding Solutions, we have all types of bonds you may require.
Get Approved for Your Motor Vehicle Dealer Bond – The next step is to apply for your bond online once you’ve determined the bond your dealership requires.
Sign and submit your DMV bond to the Department of Motor Vehicles (DMV) –
- Your bond must be signed.
- Make a backup copy for your files
- Send the state the signed bond (along with any other important paperwork provided by the state or bond agency)
After receiving your bail, the state should contact you and send your license to you; this procedure can take anywhere from one to three weeks, depending on your state.
Why is this bond being required of me?
The bond is necessary to safeguard your clients. The surety bond protects your consumers in the event that your dealership commits fraud or engages in unethical business activities. These might include (but are not limited to) the following:
- Failure to properly transfer a title
- Providing incorrect information regarding the condition of the vehicle
- Attempting to tamper with the odometer
- Failure to follow through on verbal or written promises
- Using misleading financial techniques, such as “yo-yo” financing
- Failure to pay state sales tax or other costs
- Not disclosing sales
- Failure to follow the license’s terms and conditions
What happens if a claim is made on my bond?
If you don’t follow all of your state’s rules and regulations, you might face a claim on your dealer bond. If your dealership is the subject of a genuine claim, the surety will cover all costs up to the amount of the requisite surety bond. However, the dealer would have to repay the surety for these expenses later, so avoiding claims is the best option.
Understanding Auto Dealer Bonding
Applicants for a motor vehicle dealer license are usually required to post a surety bond assuring that their dealership will adhere to industry rules. From one state to the next, this form of license and permission bond is known as an automotive bond, a car dealer bond, a dealer bond, a wholesale dealer bond, a motor vehicle dealer bond, a used car dealer bond, and so on.
Dealer bonds are used to safeguard consumers from fraud and other unlawful acts performed by dealerships and their staff, regardless of their name. However, the level of protection provided by an auto dealer bond is determined by state and/or municipal legislation.
Contact one of our surety professionals here at Bonding Solutions right now if you’re ready to apply for an auto dealer bond.
How Much Does an Auto Dealer Bond Cost?
Auto Dealer Surety Bonds are usually underwritten based on the ownership’s credit score, however financials and expertise may be taken into account to assist enhance your rate. You may learn more about the cost and types of a surety bond here and search them by the state.
Save Money on Your Auto Dealer Bond
When obtaining an auto dealer surety bond from Bonding Solutions, highly qualified applicants might spend as little as 1% of the total bond amount. An underwriter will calculate your precise premium based on the following factors:
- The bond’s value
- The bond’s duration
- Personal credit is given to all business owners who control 10% or more of the company
Bonding Solutions is a surety agency that works with a number of the industry’s major suppliers, which means we’ll shop your bond around to several underwriters until we get you the best deal.
Get a free, no-obligation quotation today to see how much you may save on your auto dealer bond!
Bond Claims for Auto Dealers: Save Money
When it comes to bond claims, your bond agency should be your first line of defense. When selling automobiles, it’s as simple as conducting your business professionally and ethically while adhering to the conditions of your bond to avoid claims. While this may seem obvious to you, some car dealers are inclined to deceive their consumers in order to make a profit, such as selling items that aren’t up to par.
If you mislead your consumers in any manner, it might result in bond claims, which may be costly to your dealership. Remember that any claims against a motor vehicle dealer surety bond that you cause are your responsibility. Find out how we can help you save money if you have a bond claim. Please contact us if you need assistance understanding exactly what your bond promises you will and will not do.
Bonding Solutions delivers customer-friendly service for every sort of surety bond your vehicle business needs, allowing you to get back on the road faster, request your bond us or call us at 1 (877) 841-6745 , we’ll be glad to help with anything you need to know.