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How much does an auto dealer bond cost?

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.

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Overview

A Payment Bond is a type of construction surety bond required on public works projects and many private jobs. It guarantees that the contractor will pay subcontractors, laborers, and suppliers for work and materials used on the project. Unlike a performance bond, which protects the project owner, a payment bond protects the people providing labor and materials. Without it, unpaid parties may have limited recourse.

Purpose of Payment Bonds

Subcontractor Protection: Ensures that subcontractors, laborers, and suppliers are paid in full.
Legal Requirement: Commonly mandated on federal, state, and municipal projects; private owners may require it as well.
Credibility: Shows the contractor is financially vetted and backed by a surety, giving confidence to all parties.
Accountability: Creates financial consequences if the contractor fails to meet payment obligations.

Cost of Payment Bonds

Payment bonds are typically paired with performance bonds and priced together.

Premium Range: Usually 1–3% of the total contract value.
Size Factor: Large projects may have lower percentage rates due to scale.
Credit & Financials: Surety companies base pricing on the contractor’s credit, financial statements, and project history.

Key Considerations

Bond Amount: Equal to 100% of the contract amount in most cases.
Requirement: Standard on government-funded projects under the Miller Act and state “Little Miller Acts.”
Claims: Subcontractors or suppliers who aren’t paid can make claims directly on the bond.
Pairing: Usually issued alongside a performance bond as part of the bonding package.