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Tennessee Auto Dealer Bonds

May 23, 2022

Tennessee Auto Dealer Bonds are required by the State of Tennessee to obtain and maintain an active auto dealer license. Learn more about what these surety bonds guarantee, what they cost and how to easily get one.


What Does a Tennessee Auto Dealer Bond Guarantee?


A Tennessee Auto Dealer Bond is a type of License Bond that is a requirement for an Auto Dealer in Tennessee to obtain and remain a licensed Auto Dealer in the state. A Tennessee Auto Dealer Bond protects a buyer against the dealer’s following actions: 


“(i) Nonpayment by the dealer of a retail customer's prepaid title, registration or other related fees or taxes;  or

(ii) The dealer's failure to deliver in conjunction with the sale of a vehicle a valid vehicle title certificate free and clear of any prior owner's interests and all liens except a lien created by or expressly assumed in writing by the buyer of the vehicle.”


The bond gives the purchaser of vehicles assurances that they will receive a lien free title and that all prepaid taxes and registration fees will be paid. If they do not, they can make a claim against the Auto Vehicle Dealer Bond. 


Amount of a Tennessee Auto Vehicle Dealer Bond


The Tennessee Auto Vehicle Dealer Bond needs to be at least $50,000. The liability of the surety bond company shall in no case exceed this amount, even when the surety has written the bond for a licensed dealer over multiple years. A Surety can continue the bond for multiple periods by attaching riders to the bond. 


Tennessee Auto Dealer Bond Amount - This shows that a Tennessee Auto Dealer Bond is required to be $50,000. The background is a car dealer lot with a purple border.


Who Are the Parties to a Tennessee Auto Vehicle Dealer Bond?


The Principal on the bond is the licensed auto dealer. They are the party responsible for upholding the bond guarantee. The Obligee is the Tennessee Motor Vehicle Commission. This is the party requiring the bond from the licensee. The Surety is the third party bond company who is guaranteeing the Auto Dealer’s performance. 


Parties to a Tennessee Auto Dealer Bond - This chart shows the three way relationship between the Tennessee Auto Dealer, the Surety Bond Company and the Motor Vehicle Commission. The background is an auto dealer handing over keys to a car.


Changes to the Bond


The Auto Dealer must notify the surety within 30 days of any changes to the bond. This includes, name, address, ownership, etc. The Surety must send a modification to the Committee. However, any changes do not affect the liability of the surety bond company or Auto Dealer on the bond. 


Cancellation of a Tennessee Auto Vehicle Dealer Bond


A Tennessee Auto Vehicle can be canceled anytime with 60 days written notice by the surety bond company. A licensed dealer will need to replace the Dealer Bond within that period or their license may be suspended. Notice must be sent to both the Principal Auto Dealer and the Executive Director of the Tennessee Motor Vehicle Commission at 500 James Robertson Parkway, 5th Floor, Nashville, TN 37243. 


However, canceling the bond does not absolve the Surety Bond Company or the Auto Dealer of any claims that occurred while the bond was in force. 


Alternatives to a Tennessee Auto Vehicle Dealer Bond


In lieu of a surety bond, the State of Tennessee may allow a dealer to post a deposit equal to the amount of the bond. If approved, the funds must be on deposit at a State approved Institution. The Auto Dealer would receive the interest on this deposit. 


Although a deposit may cost less than a surety bond, there are downsides as well. First, a Vehicle Dealer Bond does not tie up a Dealer’s cash or borrowing and the Dealer would be free to use these funds elsewhere. Second, if a claim is made, there will be little to know defense for a deposit. In order to get a Dealer’s money back, it would likely have to go through litigation. Conversely, a surety bond requires that the surety bond company investigate any claims to make sure they are valid before paying out. This provides a formal layer of protection for the Auto Dealer. 


Under Tennessee Code 55-17-111g(1), a Letter of Credit is not an approved substitute for a surety bond. 


What Does a Tennessee Auto Dealer Bond Cost?


Most Auto Dealers can obtain a Tennessee Auto Dealer Bond for about 1% or $500. It is important to know that the bond renews each year and the premium will also be due each year. Auto Dealers with strong financial statements can get better rates. Alternatively, Auto Dealers with less than perfect credit can expect to pay more. 


How to Get a Tennessee Auto Dealer Bond


Most Auto Dealers can get a bond in minutes with just a personal credit check. Simply click the button. Auto Dealers can select a 1, 2, or 3 year term. 


Instantly Purchase a Tennessee Auto Dealer Bond Button. Green button with a white border.


For those that want the best rates, or who have credit challenges, company and personal financial statements will likely be required. 


Do the Owners Have to Sign Personally?


In general, yes. If a company has strong business financial statements, a bond company will waive the personal indemnity requirements. Usually, strong liquidity and a net worth of $1 million or more are required to waive personal indemnity

Can I Get a Tennessee Auto Dealer Bond with Bad Credit?


In general, yes. Auto Dealers with credit challenges or claims may have to provide additional information and pay higher rates but most Auto Dealers can still obtain a bond. 


Claims Against a Tennessee Auto Dealer Bond


“Every bond shall provide for suit thereon by any person, including the state, who has a cause of action under this chapter.”


A claim against the bond must also be brought forth within a two year period. If a claim is made, the surety bond company will investigate the claim. If the claim is found to be valid, the Surety will ask the Auto Dealer to correct or pay the claim. If the Auto Dealer cannot or will not, the surety will pay the claim and seek reimbursement under the indemnity agreement. 


Additionally, “notice of any payment of a claim made against this bond shall be sent via certified mail to the Executive Director of the Tennessee Motor Vehicle Commission at 500 James Robertson Parkway, 5th Floor, Nashville, TN 37243 not more than seven (7) calendar days after such event.”


Tennessee Auto Dealer Bonds Require Indemnity


Like all surety bonds, Tennessee Auto Dealer Bonds require that the licensee indemnify the surety bond company. This means that if the bond company pays a valid claim, they will look to be reimbursed from the Principal on the bond (the Licensee). You can read more about indemnity here


Verify a Tennessee Auto Dealer License


Consumers and Auto Dealer can verify if a license is active by visiting:


Tennessee Auto Dealer Bonds are required by law. They are simple to get for most Auto Dealers so there is no reason not to get one. An Auto Dealer can obtain one in minutes by clicking here. Tennessee Auto Dealers may need other surety bonds as well including notary bonds which can be purchased here. Many of these bonds can also be purchased instantly by visiting our Tennessee Surety Bonds Page


The experts at Axcess Surety are also available anytime to answer questions. Additionally, Auto Dealers and others can visit this page for our most frequently asked questions about surety bonds. 


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