A surety bond has three parties involved in the process: Principal, Obligee, and Surety. The principal party pays for the bond and performs the service; the obligee is the one the service is being performed for; and the surety is the party that pays the obligee in case the principal fails to perform.
There are three main types of surety bonds: commercial, contract, and court. All surety bonds are issued for a set term and their cost and payment options vary depending on the type of the bond.
What’s a Bond Term?
A bond term is the period during which the bond is considered active and enforceable. In this duration the surety is liable to pay on behalf of the principal, as and when needed.
Bond terms depend on the kind of surety you’re looking for and the surety company you’re going for. Most surety bonds are valid for a set number of years (1 year for a majority of bonds). However, some are non-renewable and are continued until the surety cancels them.
What’s the Cost of the Bond?
The cost of the bond is usually between 1 and 15 percent of the bond amount. For example, if you receive a bond of $5,000 at a 1% rate, you’ll be required to pay $50 to the surety to secure your bond. Depending on the surety and the type of bond, the cost varies. Typically, high-risk bonds are more expensive for the principal because the surety is taking a bigger risk by offering them a bond.
The same idea applies to people with a below average credit score and poor financial history. Since the surety is undertaking a higher risk with such individuals, their rate is also higher.
What Are the Payment Options for Surety Bonds?
Generally, a surety bond can be paid off with an up-front cost or it can be paid in installments. Depending on the type of the bond and its cost, the payment options are detailed as follows:
If the principal can afford to pay an upfront amount to the surety, a one-off payment is enough to keep the bond valid for the term. This amount is decided after a careful assessment of the principal’s credit score, financial history, and the type of bond they’re seeking.
If the principal decides to renew the bond, they’ll be subjected to another assessment of finances and the prevalent market risks. After the assessment, a new rate is decided, and the principal can again pay it upfront to secure the bond for another term.
The surety can also offer other payment plans such as installments. The cost of the bond is consequently broken down into a down payment and equal monthly installments. However, installments are only offered when the following criteria is met:
· It should be a cancellable bond so that the surety can cancel it in case of non-payment.
· The cost of the bond must be over $1,000-$1,500 to be broken into installments.
· The individual’s personal finances should also qualify for a payment plan.
Surety Bonds in Los Angeles
You must always choose a surety company with more than five years’ worth of experience in bond execution. If you’re looking for one online, Surety EZ is the place to go. At SuretyEZ, we offer all kinds of surety bonds under the sun, with payment options to suit your specific needs. Start today by filling out an application form on our website and our dedicated team will get back to you promptly. For inquiries, get in touch with us.