Why it is important to buy from bonded vehicle dealers?

Whether you’re in the market for a new, used or classic car, you know working with a trustworthy dealer is an important part of the process that can make or break your car buying experience. Unfortunately, you also know that finding such a dealer isn’t always as easy as it should be. You probably know at least one friend or family member who was ripped off by a selfish, unethical dealer. To help limit the amount of auto dealer fraud that takes place within the market, government agencies enforce a number of different policies. One of the most common is the use of auto dealer surety bonds.
Before we get started, let’s quickly review how surety bonds work and why they’re required.
Surety bonds function as legally binding contracts that join three parties together. The principal is the auto dealer who buys the bond as a financial guarantee of future work performance. The obligee is the government agency that requires the bond as a way to reinforce industry regulations and protect consumers from financial loss. The surety  is the insurance company that issues the bond and provides a financial guarantee of the dealer’s ability to perform according to bond terms.
Now that you know how bonds work, let’s talk about the two main reasons buyers should buy from bonded dealers.

1. Bonded car dealers are likely to comply with licensing laws.

Dealers in 47 states are required to file a surety bond before they can be legally licensed to sell cars. In some states dealers have to be legally licensed and bonded even if they intend to sell no more than two or three vehicles a year. Surety providers don’t issue bonds to dealers who are likely to break licensing laws because then they’d have to pay out claims. As such, if your dealer is licensed and bonded, chances are he follows whatever auto dealer licensing laws apply in your area. So, when you find an auto dealer you’d like to work with, be sure to check with your local auto dealer licensing agency to verify that he’s legally licensed and bonded.

2. The bond’s financial guarantee protects you from fraudulent dealers.

Depending on the bond’s legal language, the bond amount could be used to reimburse buyers if a dealer

• fails to disclose accurate mileage
• sells stolen vehicles
• fails to provide a vehicle title
• otherwise misrepresents facts about a vehicle to its purchaser
• uses other fraudulent sales tactics

If the auto dealer commits these atrocities or breaks the bond’s terms in another way, harmed parties can make a claim on the bond. If the claim is found to be valid, the harmed parties will be compensated for their losses. It’s easy to see why surety bond protection is so valuable to maintaining the integrity of the auto industry.
Danielle Rodabaugh is the chief editor of the Surety Bonds Insider, a publication that tracks news related to the surety industry. As a part of the publication’s educational outreach program, Danielle helps consumers better understand the role bonding plays in the auto industry.