What is a Texas Auto Dealer Bond?
Establishing an auto dealership in Texas comes with many responsibilities, not the least of which is obtaining a Texas auto dealer bond. As part of the licensing process, having a Texas auto dealer bond is required to protect customers who engage with your dealership. When illegal or fraudulent business practices take place, a claim can be made against your Texas auto dealer bond to cover financial losses the customer experienced.
Like other surety bonds, a Texas auto dealer bond is a contract between three parties. The obligee is the licensing authority that requires the bond. For auto dealers in the state, the obligee is the Texas Department of Transportation. The dealership that needs to obtain the bond is the principal, and the surety is the company providing the bond.
Who is Required to Get a Texas Auto Dealer Bond?
Anyone operating as a motor vehicle dealer in the state of Texas is required to have an auto dealer bond under the law. An auto dealer may be a new (franchised) or used dealership. Each auto dealer must register for a General Distinguishing Number or GDN as well as complete all licensing applications and forms before an auto dealer bond is issued.
Texas Auto Dealer Bond Obligee Information
Under Texas state laws, licensed auto dealers are required to secure a Texas Motor Vehicle Bond, also known as an auto dealer bond. The statutes put in place governing licensing requirements for auto dealers give authority to the Texas Department of Transportation as the obligee of auto dealer bonds. The department details are as follows:
Texas Department of Transportation
Motor Vehicle Division
4000 Jackson Avenue
Austin, Texas 78731
What Does a Texas Auto Dealer Bond Cost?
The Texas Department of Transportation requires auto dealers operating either new or used dealerships in the state to have a bond of at least $25,000 in place. However, you are not required to pay for the entire bond amount out of pocket. Instead, you pay a percentage of the Texas auto dealer bond, based on several factors.
The surety company providing your Texas auto dealer bond takes a close look at your personal credit score as well as your business financials. Because a surety bond is a form of credit extended to your dealership to cover claims, having strong credit is helpful in getting a low-cost bond. For most auto dealers, the percentage of the bond amount paid ranges from 1 to 10%. Auto dealers with poor credit are charged a higher percentage rate than auto dealers who have good credit.
How Do You Get a Texas Auto Dealer Bond?
You can start the process of getting your Texas auto dealer bond easily. You simply need to submit a brief online quote request and provide basic information on your dealership.
Texas Auto Dealer Bond Term and Expiration Date
All Texas auto dealer bonds have two-year terms, with an expiration date falling on the last day of the month two years after they are issued. They are not continuous, which means that the bond must be renewed at least every two years, similar to the license for a Texas auto dealer.