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Purchasing a car dealer bond (aka auto dealer bond) is a key requirement for becoming licensed to do business as a dealer in Louisiana. These bonds are a type of surety bond that protects the state of Louisiana and customers from the unlawful or unethical actions of motor vehicle dealers. These bonds obligate dealers to abide by all relevant laws of the state of Louisiana and conduct business in an ethical manner.
All motor vehicle dealers, whether they sell new vehicles or pre-owned ones, must be bonded in order to obtain a business license. All Louisiana auto dealer licenses expire on December 31 of every year, even if they were issued mid-year. Auto dealer bonding in Louisiana is not continuous, so you must purchase a new bond at the same time you renew your auto dealer license.
There are three parties involved in the bond contract:
If you fail to comply with applicable Louisiana laws, the obligee or a customer who has suffered financial harm as a result of your actions can file a claim against your bond.
The surety will investigate to validate any claim before paying it. However, surety bond contracts include indemnity clauses. This means that you are legally obligated to reimburse the surety for any amounts paid out to claimants.
The state of Louisiana has established the required bond amount (also known as the penal amount of the bond) at $20,000 for new car dealers and $50,000 for used car dealers. The higher bond amount for used car dealers acknowledges the higher risk to consumers of buying pre-owned vehicles.
Your personal credit score is the single biggest factor in determining the premium rate you will pay for an auto dealer bond. You can expect to pay anywhere between .5% to 5% of the bond penalty amount if you maintain good credit. Applicants with poor credit or a history of bankruptcy, tax liens, or being sued may pay a higher premium.
The Louisiana Motor Vehicle Commission establishes the requirements for auto dealer licensing. For a guide to the dealer licensing process in Louisiana, view our blog post here.
If you’re a motor vehicle dealer in Louisiana, our experienced surety professionals are ready to help you get the car dealer bonds you need.
