Motor vehicle dealer (MVD) bonds are surety bonds that offer both customers and dealers protection. As a motor vehicle dealer, you have likely heard of this type of surety bond before. However, you might not fully understand what they do. While you might know that a MVD bond can protect your car dealership business, you need to familiarize yourself with the details in order to achieve optimal protection. Read this post to learn how a motor vehicle dealer bond works.
Who Is Involved In The Bond?
To begin understanding how a motor vehicle dealer bond works, you need to know who is involved. Since MVD bonds are surety bonds, they involve three parties. The first party involved is known as the principal. The owner of the car dealership business, which is you in this case, is the principal and the one who invests in the bond. The second party involved is the obligee. This party is typically the vehicle licensing government entity. They are in charge of protecting your customers. Finally, the last party is the surety. Their role entails underwriting and issuing the MVD bond. Keep the parties involved in mind when applying for a motor vehicle dealer bond. That way, you will understand how the process works.
Why Dealers Need MVD Bonds
Many dealers question why they even need motor vehicle dealer bonds. The main reason for obtaining this type of surety bond is to guarantee that you will comply with all laws relevant to your practice. When dealers do not comply with the terms they agreed to, they put their customers at risk. In turn, customers lose capital and tell their fellow consumers about their negative experiences. Therefore, you need to obtain an MVD bond for multiple reasons. You need one to put prospective customers’ minds at ease. You also need an MVD bond if you want to build a positive reputation. If you can understand why you need a motor vehicle dealer bond, you can grasp how they work.
MVD Bond Requirements
Another crucial component to understanding how motor vehicle dealer bonds work is the requirements. You need to know how to qualify for one after you conclude that you need one. Unfortunately, there is no single answer. Each state has different requirements when it comes to MVD bonds. Although requirements vary per state, each state has the same objective in mind when taking applications. Their goal is to reduce the amount of financial and legal loss dealers cause. To ensure that you conduct business legally, review your state’s bond requirements and apply.
Auto Dealer Bond Costs
Similar to the requirements, the cost to obtain an auto dealer bond differs by state. Some states offer bonds for $5,000. Dealers in other states can pay as much as $100,000 for an MVD bond. Regardless of your state’s price, you can keep your costs low if you have good credit. When dealers with bad credit scores apply for motor vehicle dealer bonds, they typically get hit with a premium that they cannot afford. Review your credit score to determine whether you will be able to receive a MVD bond for a smaller amount of capital. This is a crucial step to take in understanding how MVD bonds work.
Furthermore, learn how the renewal process works to fully understand the motor vehicle dealer bond. The simplest way to explain the renewal process is that you need to renew your bond as often as you renew your dealer license. Since most car dealers renew their licenses either annually or biannually, you will likely need to obtain new bonds on a yearly or biyearly basis. Most surety companies inform you of your renewal date a few months early. That way, you have enough time to renew both your license and your bond. If you want to protect your company properly, understand this renewal process for MVD bonds.
Car dealers who want to protect their businesses as well as their customers need to purchase motor vehicle bonds. Before doing so, however, you need to understand what they entail. These bonds involve three parties: principal, obligee and surety. Familiarize yourself with the reasons why you need one of these bonds. Ensure that you meet all of the auto dealer bond requirements that you state. Find out how much your state charges for a MVD bond. Finally, review the renewal process to guarantee that you stay protected in the future. If you follow all of these steps, you will make a well-informed decision regarding a motor vehicle dealer bond.