An Iowa auto dealer bond is an agreement between three entities; the principal (the dealer obtaining the bond), the obligee (the state DOT providing licensure), and the surety company that issues and backs the bond. In this case, the principal is any dealership whose business depends on directly working with motor vehicles, and it is required in Iowa to post an Iowa auto dealer bond before operating in the state. Unlike insurance, this bond protects the state and customers, rather than the principal, against unethical or illegal business practices. The official title for this bond is “Bond for Motor Vehicle and/or Towable Vehicle Dealer,” but it is also known as a Motor Vehicle Dealer Bond, Car Dealer Bond, and, of course, an Auto Dealer Bond. The total bond amount in Iowa is $75,000, and our annual rates start at $750.
The cost, or premium, is only a percentage of the total bond amount, and Iowa auto dealer bond premiums are typically between 1%-10% of the total bond amount. Surety agencies also base the price on the buyer’s credit score and history, business and personal finances, and professional experience within the industry. Of these, credit score has the most weight. Those with higher credit scores can expect to see rates between 1.5%-3%. Buyers with notably low credit scores can still get bonded but expect premium rates closer to 10%. The set total bond amount for an Iowa auto dealer bond is $75,000, and our annual rates start at $750.
We’re committed to offering our customers the best rates available on the market for their bonds. To do this, we have partnered with over 10 insurance partners, allowing us to find the best price available for each customer. Each surety company will rate each business differently, so even if a business has been declined or quoted a high premium, we can find a great, affordable quote from one of our 10 partners.
In Iowa, any business centered around the sale, exchange, maintenance, manufacture, distribution, or dismantling of motor vehicles is legally required to post an Iowa auto dealer bond to operate and obtain licensure in the state.
Unlike typical insurance, an Iowa auto dealer bond protects the customers and the government that the business deals with, not the principal itself. An Iowa auto dealer bond is a legal agreement between the state, business, and surety company. The bond guarantees that the dealership will abide by the law, follow industry standards, and provide an overall trustworthy and ethical auto sales experience. The bond’s purpose is primarily to protect against fraudulent sales and negligent bookkeeping errors. If the business makes a mistake or is involved in unethical or illegal activity, such as being dishonest about the condition of a vehicle, a claim can be filed against the dealership to be compensated for the harm caused by the error. The bond then takes care of the financial burden for the business and covers the immediate monetary repercussions on its behalf.
If an auto dealer is involved in unethical or illegal activity - such as not being upfront about a vehicle’s condition before selling - a claim can be filed against the dealership. Then, the surety company that provided the bond must investigate it. If it is valid, they will pay out an amount up to the total of the bond to those affected.
After the claim has been paid out, the surety company will expect to recoup the claim amount from the customer. This is because the bond was intended to cover the obligee and not the business, so the surety company requires the entity to repay them for the claim amount. In addition, it is important to note that getting approved for a bond in the future is more challenging after a claim has been filed. This will not only have legal repercussions, but it will also have an impact on the reputation of the dealership as well. If they do not pay back the surety company, it can lead to them having more difficulties getting a bond in the future, or they may pay a much higher premium.
You can apply for an Iowa auto dealer bond online by completing an application. You can expect to submit your SSN for a soft credit check, dealer or dealership name, dealership address, and dealer license number (if already received).
Once the bond has been granted, it will be in effect and can be renewed annually as long as the principal plans to stay in business. We’ll reach out around 30-45 days before the bond is set to expire to begin the renewal procedure.
Be upfront and honest about all products, services, and practices. Avoid the following:
First, decide what license your business will need, as each type has specific requirements. Reference the table below if you still need to determine what your business will need.
Type of license Applies to Dealers Who… Retail Sell new or used vehicles as a retailer Manufacturer/Distributor or Wholesaler Manufacture, distribute, or sell vehicles wholesale Leasing Lease cars for more than 60 days Recycler Salvage, repair, or sell used vehicle parts Towable RV Sell towable recreational vehicles Special Equipment Wholesale dealers modifying existing vehicles Mobile Home Sell mobile homes Restricted Sell vehicles strictly through an offer to purchase in lease agreements Only sell repossessed vehicles Fleet sale dealers Auction only dealers Insurers selling vehicles through the course of their regular business
Then, establish a location that meets the minimum requirements for the type of business and license you will be applying for, and make sure you have zoning approval. To operate, you must first purchase Bodily Injury Liability insurance, including the coverage of a person, two or more people, and property damage. Iowa also requires the applicant to complete 8 hours of training specific to the industry before obtaining the license. In addition, you must, of course, post an auto dealer bond. Then, you can complete the application and pay all applicable fees. Required documentation may include:
To renew your license, complete the renewal form annually before December 31.
Yes, all states and the District of Columbia have requirements for auto businesses to acquire an auto dealer bond to operate as a dealer. Check with your state’s DOT to determine licensing and bonding requirements.
