Glossary of Business Credit Terms

# A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Auto Dealer Bond

What Is An Auto Dealer Bond?

Auto dealer bonds or Surety bonds for vehicle dealers is a bond obtained by vehicle dealers that ensures that they will comply with the industry rules and regulations of vehicle dealership in whatever state they find themselves. This bond is a requirement for obtaining a license and it protects consumers from unlawful acts of car dealers either committed purposefully or by negligence.

How Does An Auto Dealer Bond Work?

An auto dealer bond is a type of surety bond, so it is a legally binding contract between a Principal, an Obligee and a Surety. The principal here is the car dealer, the Obligee is the state government and the Surety is the bond company.

Before a dealer is granted a license to operate in any particular state, he/she must first obtain this bond which guarantees that he will adhere to the dealership rules of the state and not be involved in any fraudulent activities against customers. The Surety is there as a middleman to guarantee the dealership’s ability to pay financial damages if found to have defaulted.

If the dealership defaults on any of the bond conditions, then the customers can file a claim against the bond and the Surety steps in to pay the amount if the dealership does not have immediate funds. The dealership must then reimburse the amount spent by the Surety.

Basically, an Auto Dealer bond is one that ensures that motor dealers adhere to the rules and industry standard.

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