Alabama Auto Dealer Bond

Businesses throughout the country must obtain auto dealer bonds to operate as licensed car dealerships. An Alabama auto dealer bond is a necessity for auto dealerships serving customers in the state. The state’s Motor Vehicle Division requires this type of Alabama surety bond for anyone looking to obtain an Alabama auto dealer license.

An Alabama auto dealer bond is a safeguard for car buyers. The bond keeps your dealership operating in accordance with state and federal laws when buying and selling vehicles. If a customer is financially harmed when using your business, a claim can be made against your Alabama auto dealer bond.

Owners of auto dealerships in Alabama must have appropriate licensing, and this licensing includes securing an auto dealer bond.

All new and used motor vehicle dealers, motorcycle dealers, trailer dealers, and wholesale dealers must have a surety bond. Reconditioners and rebuilders must also have an Alabama auto dealer bond.

An Alabama auto dealer bond is a financial agreement made between three parties. Together, this agreement keeps customers that buy and sell cars at the auto dealership safe from fraud and other financial mishaps.

The Obligee

The obligee is the state agency that requires the auto dealer to obtain a bond for the purpose of abiding by all state laws. In this case, the obligee is the Alabama Department of Revenue.

The Principal

The principal is the auto dealer that applies for the bond so they can obtain a license for their auto dealership business. Without an auto dealer bond, the principal cannot legally buy or sell cars to the public.

The Surety

The surety is the company that gives the auto dealer bond to the principal. The surety charges the principal a percentage of the total bond amount and if a customer makes a claim on the bond, the surety pays the claim. The principal is then responsible for repaying the surety.

Section 40-12-391 of the Code of Alabama 1975 mandates the licensing requirements for businesses operating as auto dealers in the state. The law gives authority to the Alabama Department of Revenue as the obligee of auto dealer bonds. The obligee details are as follows:

Department of Revenue

Motor Vehicle Division

2545 Taylor Road

Montgomery, Alabama 36117

Phone: 334-242-9000

Like other surety bonds, an Alabama auto dealer bond costs a percentage of the total bond amount required by the state. For new and used auto dealers, the state requires a minimum of $25,000 bond to be secured.

You only pay a portion of this amount, which is typically between 1 and 3%. An auto dealer with strong credit, a track record of responsible business management, and experience in the industry is likely to pay a lower percentage than a dealership without these traits.

An Alabama auto dealer bond may cost more if your personal credit or business financials are not strong. Although it is still possible to obtain an auto dealer bond in Alabama with bad credit, you may end up paying between five and 10 percent of the total bond amount.

Past liens, court judgments, bankruptcies, foreclosures, and late or missed payments can bring down your credit score. These negative marks can lead to a higher rate for your Alabama auto dealer bond because you pose a higher risk to the surety company.

Even if credit is an issue, you can still get an Alabama auto dealer bond. You can submit your application easily online and get a fast quote based on the details you provide.

Alabama auto dealer bonds are continuous, meaning once an initial bond is granted, a continuation certificate must be provided at the end of each renewal period. Expiration dates for Alabama auto dealer bonds are in line with annual licensing renewal deadlines.

For licensed auto dealers in Alabama, the licensing period begins on October 1 and extends through September 30 of the following year. An auto dealer bond may be secured at any point during the licensing period, but renewal is required by October 31 each year.

As mentioned above, Alabama auto dealer bonds are continuous. You simply need to make your monthly payments for the bond to continue without expiration. If your auto dealer bond is on a one-, two-, or three-year term, then you’ll receive a renewal notice before your term ends.