Tennessee Auto Dealer Bonds
Surety Bond Professionals is a family owned and operated bonding agency with over 30 years of experience. With access to a broad range of surety markets, our expert agents are ready to assist with all of your Tennessee auto dealer bond needs.
What Are They?
Tennessee auto dealer bonds are a type of surety bond known as license bonds, because purchasing one is a prerequisite for becoming licensed as an auto dealer in the state. The bonding requirement helps ensure an orderly and safe auto dealing trade by providing financial protection for the state and the public in two ways.
First, the bond is a dealer’s guarantee to do business in accordance with all applicable laws and regulations. Second, in the event of a violation by the dealer that causes the state or the auto-buying public to experience a financial loss, the injured party can seek compensation by filing a claim against the dealer’s Tennessee auto dealer bond.
Who Needs Them?
The Tennessee Motor Vehicle Commission (MVC), a division of the Tennessee Department of Commerce and Insurance, is the government entity that issues motor vehicle dealer licenses. Applicants for licensure must provide a $25,000 Tennessee auto dealer bond with the same two-year term as the dealer’s license. There must be an active bond in force at all times to avoid penalties and fines, so a given dealer must renew both their license and their bond prior to the expiration date.
Speak with a Surety Bond Professionals agent today to discuss your bonding needs.
How Do They Work?
MVC and the dealer are two of the three parties to the legally binding surety bond agreement and are referred to as the “obligee” and the “principal” respectively. The third party to the bond is the bond’s guarantor, known as the “surety.”
The bond gives the obligee a way to recover taxes and fees the principal has failed to remit to MVC. It also indemnifies the obligee against responsibility for financial harm to the public resulting from a licensed dealer’s unlawful or unethical actions. It’s the principal who bears the full legal obligation to compensate consumers with valid claims for damages caused by the principal’s actions, such as fraudulently altering a vehicle title or deliberately misleading a buyer regarding the condition of a vehicle.
The surety investigates every claim to determine whether it is legitimate and should be paid. Then, although the principal is legally responsible for paying claims, the surety most likely will pay a valid claim initially, to be reimbursed later by the principal. Reimbursement is mandatory because although the surety guarantees the payment of claims, the legal obligation remains with the principal. If need be, the surety can take the principal to court to secure reimbursement for claims paid on the principal’s behalf.
What Do They Cost?
The premium for a Tennessee auto dealer bond is calculated by multiplying the $25,000 bond amount by the premium rate the surety assigns to the principal. That rate will take into account the risk of the principal not repaying the surety for claims paid by the surety on the principal’s behalf. The underwriters measure that risk largely on the basis of the principal’s personal credit score. The assumption is that someone who has repaid debts in the past will continue to do so.
A high credit score is regarded as a sign that the risk to the surety is low, which typically results in a low premium rate, around one percent. On the other hand, a low credit score signals a higher risk to the surety, which warrants a higher premium rate, conceivably as high as three percent or more.
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Our surety bond professionals will get you the Tennessee auto dealer bond you need at a competitive rate.