What is a California Auto Dealer Bond?
Car dealerships operating in California are required to hold an auto dealer license. As part of the pre-licensing requirements, a California auto dealer bond is necessary. An auto dealer bond is a type of surety bond that helps protect car buyers from illegal business practices. If a customer of a car dealership incurs financial losses or damages because an auto dealership does not follow state or federal laws, a claim can be made against the dealership’s bond.
A California auto dealer bond involves three parties: the licensed auto dealership, known as the principal, the California Department of Motor Vehicles, known as the obligee, and the surety company providing the auto dealer bond.
What Does a California Auto Dealer Bond Cost?
Auto dealer bonds in California are priced as a percentage of the total bond amount required by the state licensing authority. California requires an auto dealer bond of no less than $50,000, but licensed dealerships only pay a fraction of this amount. The cost ranges from 1 to 10%, depending on your credit history and other factors you provide on your bond application.
A California auto dealer bond will cost more if you have less than good credit or the financial strength of your dealership is lacking. These factors play a role in the percentage you pay because a surety bond is a form of extended credit. When a claim is made, the surety company will compensate for financial losses up to the bond amount. However, you are required to repay this amount to the surety. Because of this structure, a healthy credit score is necessary to obtain a low-rate California auto dealer bond.
How Do I Get a California Auto Dealer Bond?
You can start the process of securing a California auto dealer bond by submitting a brief application online. After your application is reviewed, you will receive a quote and instructions for completing the process.