What is a Colorado Auto Dealer Bond?
Licensed auto dealers operating a business in Colorado are required to have a license to sell new or used vehicles. Wholesale and auction dealers must also meet this statewide requirement. Part of the licensing process involves obtaining a Colorado auto dealer bond which works to safeguard customers from fraudulent business practices. A Colorado auto dealer bond also ensures that any licensed dealer complies with state regulations and industry standards.
Three parties are involved in a Colorado auto dealer bond: the principal is the auto dealer, the surety company provides the bond, and the obligee, the Colorado Department of Revenue, requires a bond to be posted. Once a bond is in place, claims against the bond are paid by the surety company initially, but the principal is required to repay bond claims.
What Does a Colorado Auto Dealer Bond Cost?
A Colorado auto dealer bond allows customers who suffer financial losses to make a claim for compensation, up to the total bond amount. That bond amount for licensed dealers is $50,000, but you only pay a small percentage of the total. The percentage, known as the bond premium, ranges from 1 to 10% for most auto dealers in Colorado.
The bond premium is determined after the surety company evaluates your personal credit history and business financial standing. Auto dealers with a low credit score due to financial missteps in the past are seen as a higher risk than those who have a clean credit history. Because of the increased risk, the bond premium for bad credit auto dealers is higher.
How Do I Get a Colorado Auto Dealer Bond?
You can start the process of securing a Colorado auto dealer bond by submitting a brief online application. The surety company reviews your personal credit history and score, along with your business financials, and provides you with your bond premium.