Auto Dealer Bond

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Many states have licensing requirements that require car salespersons to obtain an auto dealer surety bond. Whether you need a bond for your dealer application or to run a dealership, here is what you need to know.

What is an Auto Dealer Bond?

Auto dealer bonds (also known as car dealer bonds) are legally binding contracts that protect your customers. Should you not follow the auto dealing regulations in place—for example, if you sell a vehicle with invalid tags—your clients can make claims against your bond. While the surety company intitially covers any valid claims, you are required to pay them back.

How Much Does an Auto Dealer Bond Cost?

Auto dealer bond costs are a percentage of the bond amount required of you. A surety company will determine this percentage based on various factors, including your personal credit, the bond amount, and your state.

You can use our bond premium tool to get an instant cost estimate on your dealers bond. You can also look at our most frequently asked surety bond questions.

How Much is a $50,000 Auto Dealer Bond?

The bond price for a $50,000 auto dealer bond generally ranges from 1% to 10% of the total cost, depending on how high-risk you are deemed. Therefore, the bond cost will be approximately $500 - $5,000.

You are only required to pay the full surety bond cost ($50,000) if a valid claim of the same amount is made against it.

Getting a Dealer Bond with Bad Credit

It's possible to get a new and used car dealer surety bond with bad credit, but not all bond agencies will be able to approve you. Why? Because your personal credit is the main item that is considered during the underwriting process. Your credit score is used to get an idea of your likelihood of triggering bond claims and your ability to pay them.

Things like unpaid collections or tax liens on your credit report negatively reflect how you handle your finances. Since you are responsible for paying bond claims, this can result in you getting declined for a bond. Note that even if you get approved for a bond with credit issues, your costs will likely be higher.

Use our free estimate tool to find out what your bond will cost with credit issues.

What Does an Auto Dealer Bond Cover?

Your surety bond protects your clients and the obligee (the entity that required you to obtain the bond)—not you. If you commit fraud or break any other rules while selling vehicles, your clients can file claims on your bond. The surety company covers the cost of a valid claim initially, but you are then on the hook to repay them.

However, your Department of Motor Vehicles (DMV) dealer bond benefits you as well.

How? The easiest way to grasp how your bond benefits you is by understanding what surety bonds are and how surety bond alternatives affect your dealership.

Types of Auto Dealer Bonds

A few different types of auto dealer bonds can be required depending on which state you'd like to conduct business in and the type of vehicles you want to sell. Some of the most common bond types include:

  • New auto dealer bond
  • Used auto dealer bond
  • Mobile home dealer bond
  • Wholesale dealer bond

Our company handles all auto dealer bond types: get a free quote today. All we need is some basic information such as your name, phone number, email, and the bond amount.

How to Get an Auto Dealer Bond: Step-By-Step Guide

#1: Determine Your Requirements

Most states require auto dealer bonds to operate a dealership, but not all. If you're just beginning your research, select your state from the map below to determine your requirements.

If you need help with getting your license, we created a free e-book guide that will walk you through every step to get your auto dealer license. You can also check out our online auto dealer license guide.

#2: Get Approved for Your Motor Vehicle Dealer Bond

Once you know which bond you need for your motor vehicle dealer license, your next step is to apply online for your bond.

#3: Sign and Submit Your DMV Bond to the State

Once you have your auto dealer bond in your hands you will need to:

  • Sign your bond
  • Make a copy for your records
  • Send the signed bond to the state (along with any other necessary paperwork provided by the state or bond agency)

The state should contact you after they receive your bond and ship your license to you. This process takes roughly one to three weeks—depending on your state.

Select Your State to Find a Surety Bond

Dealer License Bond Claims Can Put You at Risk

You're responsible for paying bond claims in full, which can be as large as the full bond amount (including legal costs). The indemnity agreement you must sign to get your car dealership bond is a legal contract that pledges your corporate and personal assets in the event of bond claims.

Watch our video for an easy-to-understand explanation of how bond claims work. Unfortunately, most bond agents won't take the time to explain how claims can put you at risk and how to avoid them. If this happens when working with a bond agency, it should be a big red flag to reconsider doing business with them.

BOX: Get a FREE Auto Dealer Bond Quote Today

Get free auto dealer bond pricing from the best bonding companies in the U.S.

Get a FREE Auto Dealer Bond Quote

Get free pricing from the best bonding companies in the U.S.

What You Need Besides a Car Dealer Surety Bond

There are several things that you'll want to have covered to ensure your dealership is a success. Although not required like an auto dealer bond, these tactics will give your business the best chance at succeeding and growing.

Incorporate Your Dealership

While incorporating your dealership might not seem necessary, doing so can offer several benefits that you might not be considering:

Your personal assets will be protected. This means if you have outstanding business debts, your personal assets like your vehicles or home can't be taken as payment.

Incorporation instantly adds credibility to your dealership. Having "LLC" or "Inc." at the tail end of your company name can attract new customers and partners. It suggests that your company is stable and means business.

Once you incorporate in most states, other businesses within your state cannot file your exact dealership name. This benefits your brand, as your company can not be confused with another with the same name.

There are also tax benefits, as incorporation allows you to write off expenses such as health insurance and life insurance premiums.

You will also have an easier time getting loans if needed, as banks often prefer lending to incorporated businesses. This is vital for small businesses that often do not have start-up cash available.

Get Insurance, Protect Your Business

There are different types of insurance that have their own benefits. For example, property and casualty auto dealership insurance can cover bodily injury and property damage. Whether you are a large new vehicle dealer, or a smaller used vehicle dealer, these types of insurance coverage offer protection that could benefit both:

  • Physical damage: protects your vehicle inventory in lots and vehicles used for test driving.
  • False pretense: protects you from your customers. For example, if a customer takes a test-drive vehicle without a salesperson's permission and steals or abandons the vehicle, you'll be covered.
  • Title E&O: protects you from customers who are unhappy with the purchase of their vehicle, repairs, or other services that you provide.

If you have a larger dealership, you may also be interested in:

  • Garage liability: protects your customers' vehicles that are repaired or maintained in your garage.
  • Workers compensation: protects your employees if they get injured on the job and reimburses them for the injuries or lost time at work.
  • Excess liability: protection in excess of any garage liability, workers compensation, or other coverage.

We recommend you contact a P&C insurance agency that specializes in dealership insurance for more information and to get your coverage in place. You can also get fidelity bonds, which can protect you or your customers:

Sharpen Your Skills with Sales Courses

Once you have your dealership incorporated and insurance in place, taking sales courses can take your profits to the next level. Online courses are available to boost your profit, sales confidence, and sales consistency. They can also show you how to get new customers in the door and keep them loyal customers.

Save Money on Auto Dealers Bond Claims

Your bond agency should be your first line of defense against bond claims. Avoiding claims is as easy as operating your business professionally and ethically when selling vehicles while following the rules of your bond. While this might seem like common sense to you, some auto dealers are tempted to mislead their customers to earn extra profit, such as knowingly selling products that lack quality to save on expenses.

If you mislead your customers even in the smallest way, it can come back to harm your dealership in the form of bond claims. Remember, you are responsible for paying for any motor vehicle dealer surety bond claims that you cause.

Find out how we can save you money on bond claims if they arise. If you need help understanding exactly what your bond guarantees you will and will not do, please contact a bond professional.

Frequently Asked Questions

Apply and get approved on our website, sign the surety agreements, and we will ship the bond out. If you would like to learn more about what surety bonds are and how they work, you can read our detailed guide here.

Yes, it’s possible, but bad credit usually results in higher rates.

Yes. We provide the lowest rates possible as a result of the large volume of bonds we write.

You must contact us immediately, as we have a team of claim specialists here to find a resolution for you. Keep in mind, it is crucial that you work with an expert in the surety industry. Learn more about how to ensure you choose the proper bond company.

You can take a look at our full list of license and permit bonds.


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