Texas Auto Dealer Bonds

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Learn everything you need to know about Texas Auto Dealer bonds, and get bonded today with Surety Bond Professionals.

What Are They?

The Texas Department of Transportation issues licenses for motor vehicle dealers operating within the state of Texas. One of the requirements for licensing is purchasing a Texas auto dealer surety bond, also referred to as a motor vehicle dealer bond. This type of bond is categorized as a license and permit bond.

The bond serves as an auto dealer’s guarantee to abide by all Texas laws and regulations governing the sale and purchase of motor vehicles. The intent is to protect consumers and the state of Texas against financial loss stemming from the unlawful or unethical actions of a licensed auto dealer.

Quick Facts

Here’s a quick look at the most important information about Texas motor vehicle dealer bonds:

  • Required Bond Amount: $50,000
  • Premium: $500 minimum
  • Effective Date: May 1
  • End Date: April 30 of next year

Who Needs Them?

In Texas, all auto dealers except franchised dealers are required to purchase a two-year surety bond in the amount of $50,000 from a company authorized to issue bonds in the state. The surety bond must be renewed every other year to remain valid and prevent revocation of the auto dealer’s license.

How Do They Work?

Every surety bond agreement is a legal binding contract involving three parties: the obligee requiring the bond, the principal who purchases the bond, and the surety issuing the bond. For a Texas auto dealer bond:

  • The obligee is the Texas Department of Transportation, which requires the bond and establishes the $50,000 required bond amount (also known as the penal amount).
  • The principal is the auto dealer applying for a new or renewal license.
  • The surety is the company that underwrites and issues the bond.

What Happens If A Claim Is Filed?

The bond agreement specifies what the principal must and must not do in order to prevent claims against the bond. Any violation by the principal that results in a financial loss to a consumer or to the state gives the injured party the right to file a claim for damages. The bond agreement makes the principal solely responsible for paying all valid claims.

Upon receipt of a claim, the surety will conduct an investigation to make sure that the claim is valid. While ideally the principal would make prompt payment to the claimant, most often the surety will step up and pay the claim in advance and then collect reimbursement from the principal. Every surety bond agreement indemnifies the surety against responsibility for paying claims and entitles the surety to recover from the principal any amount paid to a claimant on the principal’s behalf.

What Do They Cost?

The annual premium cost for any surety bond is a small percentage of the required bond amount. The surety determines what that percentage, the premium rate, will be based on the principal’s personal credit score and financial condition. The higher the credit score, the lower the premium rate—as low as 1% to 3% for those with great credit. Those with poor credit should still be able to get bonded but may pay a higher premium rate.

Because these bonds are valid for two years, a principal will pay twice the annual premium up front to purchase the bond. So, someone assigned a premium rate of 2% will pay a premium of $2,000 every two years (twice the annual premium of $1,000).

Get Bonded Today

Apply with Surety Bond Professionals today to get the bond you’ll need to obtain or renew your license as a Texas auto dealer.