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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.

Sample Auto Dealer Bond (Florida)
Sample Auto Dealer Bond (Florida)

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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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. Click on your state below to check for state specific requirements.

Other FAQs

What information is collected? 

The following information is collected to determine the eligibility and pricing of an auto dealer bond:

  • Auto dealer’s business name and DBA if applicable
  • Business address
  • Business owner name and SSN (for soft credit check)

Is a credit check required for 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.  

How to Get an Auto Dealer Bond

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: 

  • The state
  • The type of vehicles you plan to sell (motorcycle vs. RV vs. snowmobiles)
  • The nature of your dealership (new/franchise, used, wholesale)

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. 

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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

Can I still get a bond with a low credit score?

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. 

Auto Dealer Bond vs. Insurance (for auto dealers)  

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.

How can I avoid claims on my auto dealer bond? 

Here are some of the most common claims that are made on auto dealer bonds: 

  • Selling a vehicle without a valid title
  • Selling a vehicle without a valid tag/license plate
  • Not honoring warranty agreements
  • Installing sub-standard parts 
  • Tampering with the odometer or misrepresenting a vehicle’s condition
  • Misrepresenting financial information to auto loan lenders 
  • Failure to remit the appropriate amount of sales tax to state authorities

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:

  • Verify that a vehicle has a valid title and tag before selling it
  • Always honor warranty agreements 
  • Install only parts that have been approved from a quality standpoint by independent certification authorities. Two examples are the Certified Automotive Parts Association and the National Sanitation Foundation - Consumer Products Association
  • Never tamper with the odometer and check that the odometer has not been altered before purchasing a car for resale. You can do so by comparing the odometer mileage with the mileage on the vehicle’s maintenance or inspection records 
  • Be forthright about your financial situation with auto loan lenders and tax authorities. Pay your taxes on time
  • Be honest about a vehicle’s condition
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