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What is an auto dealer bond?

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.

Do I need an auto dealer bond?

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.

Every state and licensing board has their own rules. You can use the dropdown below to check the specific requirements for your state.

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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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Other FAQs

What are the different types of auto dealer bonds? 

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.

  • Independent Used Vehicle Dealer (Most Common): non-franchised independent dealers that sell used cars. A used car dealer bond is required in almost all states
  • Franchise Dealer: this type of dealers is established through a franchise agreement with vehicle manufacturer (i.e. Ford, Honda). This type of dealership mainly sells new cars of the vehicle manufacturer but they could sell some used cars too. Some states, such as California, have one type of surety bonds that cover both new cars and used car dealers. Some other states, such as Texas, don't require this type of dealership to obtain a surety bond
  • Wholesale Dealer: this type of dealer sells used cars to other dealers. They don't work with end consumers/car buyers directly. Most states don't have a special type of surety bonds for wholesalers; they can buy the same "used car dealership bond" as independent used car vehicle dealership. However, some states, such as California, require wholesalers to buy a specific type of "wholesale dealer bond".
  • Wholesale Motor Vehicle Auction Dealer: Wholesale auction dealers sell used car at car auctions. Some state, such as Colorado, require a specific bond for these dealers
  • Salvage Dealer: these dealers are engaged in the business of buying, selling, repairing, or rebuilding salvage motor vehicles and non-repairable motor vehicles. A few states, such as Georgia, have specific bonds for salvage dealers/inspectors, called "Salvage & Assembled Vehicle Inspector Bond"
  • Recreational Vehicle Dealer (RV/Trailer/Motorsports): these dealer sell recreational vehicles such as trailers, motorcycles, RVs, and all-terrain vehicles. A few states require a separate bond, such as Florida and New Mexico

Is a credit check required for a contractor bond? 

Yes, when issuing a contractor bond, insurance companies will typically conduct a "soft credit check" on individual contractors 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. 

What information is collected? 

The following information is collected to determine the eligibility and pricing of a contractor bond:

  • Contractor’s business name and DBA if applicable
  • Business address
  • Contractor Year’s of Experience
  • Contact number
  • Owner(s) name, and SSN 

How do I prove that I’m bonded?

We’ll send you via email a PDF copy of the bond once it’s been processed. This will serve as proof that you are bonded.

What if I have bad credit?

Generally speaking, a credit score under 600 is considered “bad credit”. We have several insurance partners that specialize in this market, so if you have a less than perfect credit score we can help. Give us a call and we’ll shop around to get you the lowest possible quote.