An auto dealer bond (a.k.a Motor Vehicle Dealer Bond, Car Dealer Bond, Auto Broker Bond) is a surety bond required by the government in order for auto dealers to obtain their license. It is a prerequisite in many states for obtaining a car dealer license.
Auto dealer bonds protect car buyers, car loan creditors, and the government from financial harm as a result of the auto dealers violating licensing laws. Similar to a dealer license, a dealer bond must be active as long as the dealer is in business.
The cost of a auto dealer bond mainly depends on two factors:
Bond Limit: Every state has a specified bond amount that they require auto dealers to be bonded for. In other words, this determines the size of bond that auto dealers have to purchase. For example, given that Texas has a bond limit of $50,000 for motor vehicle bond, the amount you pay (aka bond premium) is a percentage typically between 0.5%-5% of the bond limit. Thus, a Texas dealer bond would start from $250, and could go up to $2,500 for those with poor credit.
Credit Score: this is crucial for premium amount as well as whether a potential dealer can even obtain a motor vehicle bond in the first place. Credit score reflects whether the applicant can behave in a way that is less likely to result in a claim being filed and whether the applicant can repay any potential claim.
In the US, all states require an auto dealer bond to be licensed as an auto dealer. However, the bond amount varies based on each state. For example, in California, auto dealers that sell more than 25 cars in a given year are required to maintain a $50,000 bond.
The following information is collected to determine the eligibility and pricing of an auto dealer bond:
Yes, when issuing an auto dealer bond, insurance companies will typically conduct a "soft credit check" on individual auto dealers to determine price and eligibility. It's important to note that this type of credit check will not have any impact on an individual’s credit score.
Step 1: Determine your bond requirements
To operate an auto dealership, auto dealer bonds are mandatory in most states. The bond amount varies based on:
Generally speaking, the bond amount should be between $20,000 to $100,000, with most states requiring somewhere between $25,000 to $50,000.
Step 2: Contact a surety broker to help you shop around
After you’ve determined your bond and bond amount (if applicable), you can get in touch with a surety broker (like SuretyNow) to help you shop around. Our application form takes only 3 minutes to fill out, and we will approve your bond within one day max. In most cases we are able to get the bond done the same day.
Step 3: Sign and Submit Your DMV Bond to the State (may not be needed for some states)
After you’re approved for the bond, we’ll send you a payment link for you to purchase the bond. Once you’ve paid, we’ll issue the bond and send you a PDF copy. We will also mail you the bond if a physical copy is needed. This depends on the state. Always be sure to keep a copy of the bond around and submit the bond to the state DMV if they require it. Each state has different regulations around this.
There are many types of auto dealer bonds. To determine what bond you need, you need to determine what type of dealership you own and then research individual state law.
Yes, it’s possible to still get a dealer bond with a low credit score (650 or below). Keep in mind though that although a low credit score may not disqualify you from obtaining a dealer bond, not all surety companies will approve your application. Furthermore, if you are approved, you may be required to pay a higher bond premium due to a higher risk profile.
SuretyNow collaborates with adverse market surety carriers who specialize in providing bonds to individuals with less than ideal credit scores. Fill out our 3 minute application and we’ll do our best to find you a good quote.
An auto dealer bond provides financial guarantee that an auto dealer will comply with the terms of their license and deal with customers in good faith. If the dealer fails to comply with the terms of their license, for example by selling a car without a valid title, then the wronged customer could ask to be financially compensated through the offending dealer’s bond. An auto dealer bond is required by most states as a necessary part of being a licensed auto dealer.
Separately, many auto dealers also elect to purchase insurance for their auto dealer business. Examples of common insurance policies purchased by auto dealers include workers compensation insurance, commercial property insurance and garage liability insurance. Insurance provides compensation to the auto dealer in the event that the dealer’s business suffers from damage/loss, whereas a bond provides compensation to the customer. Furthermore, bonds are often mandatory, but dealer insurance policies are optional.
Here are some of the most common claims that are made on auto dealer bonds:
As you can see, there are multiple parties that can make a claim on your bond, such as consumers, auto loan lenders and even the state government. Therefore it’s important to be honest in your business dealings with parties when running an auto dealer business. To avoid the above claims, you should always:
