What is an Alabama Motor Vehicle Surety Bond?
In 2020, Alabama discontinued the individual licenses for motor vehicle dealers, wholesalers, reconditioners, and rebuilders and replaced them with a singular “Master Dealer” License. With the new license came an updated surety bond requirement, with a new bond amount of $50,000.
And, although Alabama had a surety bond requirement in the past, the bonding process is still a source of confusion for many individuals. As such, we hope the following will answer many of your questions about the Alabama Motor Vehicle Bond.
Who is required to have the $50K surety bond?
As previously mentioned, the Alabama Department of Revenue (DOR) requires anyone applying for their Master Dealer License to have this bond. That list extends beyond just dealers and wholesalers. According to the DOR, the following professions must have the $50,000 Alabama Motor Vehicle Bond to become licensed:
- New car dealers
- Used car dealers
- Wholesale car dealers
- Automobile rebuilders/reconditioners
- Designated agents
- Title service providers
- Automotive dismantlers and parts recyclers
How does this bond work?
Understandably, many people don’t fully comprehend the purpose of their bond or mistake it for insurance. However, a surety bond is not the same as an insurance policy. Surety bonds ensure the accurate completion of a contract or other obligation according to the terms of that contract/obligation and any applicable laws and regulations. Most motor vehicle bonds, from dealers and manufacturers to dismantlers and designated agents, work in a similar fashion. Take the Alabama Motor Vehicle Bond, for example.
The Alabama Motor Vehicle Bond ensures that a licensed motor vehicle dealer, dismantler, manufacturer, title service provider or other licensed motor vehicle business, acts within the terms of their license and state regulations and, in the instance that they do not, offers financial protection to the public. The bond is a three-party agreement between the principal (i.e., the vehicle dealer or other business), the obligee (the entity that requires the bond, in this case the Alabama Department of Revenue, see below), and the surety company that writes the bond.
If a principal fails to adhere to their licensing regulations or laws, resulting in injury to an individual (typically a customer), that injured individual (the claimant) can file a claim against the dealer’s bond. If the surety company finds the claim valid after a thorough investigation, the surety will compensate the claimant for their losses up to the bond amount. Please note that surety bonding is not insurance. The principal is financially obligated to reimburse the surety for all claims paid out, plus additional fees and expenses incurred.
The obligee for this motor vehicle bond is the Alabama Department of Revenue Motor Vehicle Division. Should you need it, their contact information is as follows:
Alabama Department of Revenue Motor Vehicle Division
2545 Taylor Road
Montgomery, AL 36117
How much does an AL Motor Vehicle Dealer Bond cost?
While the bond amount for the AL Motor Vehicle Bond is $50,000, that is not what you’ll pay for your bond. Surety companies quote bond premiums as a percentage (called the premium rate) of the bond amount. Your premium rate will depend on the type of business you conduct, your experience within the industry, your business and personal financials, and—most importantly—your credit score. Fortunately, surety bonding companies check your credit via a soft inquiry to not harm your score.
The surety company will analyze the above factors and assign you a premium rate. For those with significant industry experience and excellent credit, your rate may start as low as 0.7% to 1% of the bond amount. But you don’t necessarily need excellent credit to get bonded. Even if you have little industry experience or nonstandard (poor) credit, we still encourage you to apply for your bond. At EZ Surety Bonds, we work with several surety markets to find you the best quote available.
How do I purchase my AL Motor Vehicle Surety Bond?
At EZ Surety Bonds we provide quick and free bond quotes online. Simply fill out the short application form for your bond and you’ll hear back from us regarding your quote within 24 hours. We’re here to help, so if you have any questions along the way, please speak with one of our surety experts at 1-866-546-4605 or email us at firstname.lastname@example.org.
Frequently Asked Questions
According to the state of Alabama, the Master Dealer License allows an auto dealer to operate as a new car dealer, used car dealer, wholesaler, and rebuilder. Posting the $50,000 AL Auto Dealer Bond is only one essential step to obtaining your Alabama Master Dealer License. In all, applicants will need to complete the following to operate as a car dealer:
Provide proof of a permanent business location and necessary signage
Obtain a sales tax number by calling (334) 242-1490.
Obtain a Federal Employee Identification Number (FEIN); not required for sole proprietors
• Possess the minimum insurance requirements:
• $25,000 bodily injury/person/accident
• $50,000 combined bodily injury and accident
• $25,000 property damage/accident or a combined single limit of $75,000/accident
• Post a $50,000 surety bond
• Apply for the regulatory license (a.k.a. the Master Dealer License)
• Pay the required license fees
• Purchase the required Alabama privilege license (after obtaining a Master Dealer License )
Our step-by-step guide to Alabama dealership licenses provides more detailed information regarding this process.
There are several costs associated with obtaining your Alabama dealer license. The most obvious are the licensing fees, which (as of 2022) include the following:
• $125 for the Master Dealer License
• $5 for each additional place of business
• $25 for the Off-Site Sales License
• $25 for the Master Off-Site Sales License
In addition to the licensing fees, you will need to meet the minimum insurance requirements and get a surety bond. The cost for the required $50,000 surety bond will vary depending on your industry experience, business and personal financials, and especially your credit. Individuals with strong financials may see quotes start as low as 0.7% to 1% of the bond amount.
When you purchase your AL Motor Vehicle Surety Bond from EZ Surety Bonds, the original document gets mailed to you. Most obligees require you to file the original document (signed by you) with them directly. However, because every bond differs, confirm with the Alabama Department of Revenue regarding their bond filing requirements before taking the next steps to file your bond.