The cost of your auto dealer bond will depend on your state and the required bond amount. If you have excellent credit, you could pay as little as 1% of the total bond amount as your annual premium. For example, if your state requires a $50,000 bond, you might pay $500 annually.

In general, the higher your personal credit score, the lower your bond premium will be. If you’ve experienced claims in the past, that could also impact the cost. However, if your surety provider sees you’re low risk (with good personal and business financials), they may issue the bond instantly.

Auto dealer bonds help protect customers and the Department of Motor Vehicles (DMV) from dealerships and their employees. They may also protect financial institutions and the state from potential financial loss.

This surety bond connects three different parties:

• Principal: The auto dealer or dealership that needs the bond
• Obligee: The state DMV requiring the bond
• Surety: The company providing the bond

A customer or the state can file a claim if a dealer commits fraud or unethical/unlawful business activities. If the claim is valid, the surety may cover the claimant’s losses up to the total bond amount. The dealer will then need to pay back the surety for the damages.

Car dealerships and dealers in most states must obtain motor vehicle dealer surety bonds, as the Department of Motor Vehicles (DMV) requires. This is typically part of the state licensing process to do business. If you purchase, sell, or trade vehicles, you likely will need a surety bond and dealer license.

Motor Vehicle Dealer Definition

A “motor vehicle dealer” is an individual or business entity engaged in the business of buying, selling, or exchanging motor vehicles. The definition can vary by jurisdiction, but typically, motor vehicle dealers include those involved in selling new or used cars, trucks, motorcycles, and other types of vehicles.

Some of the most common types of auto bonds include:

• Used auto dealer bonds
• New auto dealer bonds
• Wholesale dealer bonds
• Mobile home dealer bonds
• Motorcycle dealer bonds
• Auto dealer manufacturer bonds

The bond you need will depend on your state and the type of vehicle you want to sell.

To successfully apply for and obtain a motor vehicle dealer surety bond, follow these five steps.

1. Learn the requirements for your state.

Each state may have distinct regulations and criteria for auto dealer bonds, so familiarize yourself with the necessary steps and documentation for compliance.

2. Find the specific bond you need for your business.

Different states may have various bond types, such as motor vehicle or used car dealer bonds. Select the correct bond type that aligns with your specific dealership activities.

3. Apply for your bond.

This typically involves submitting an application to a surety bond provider (like ZipBonds). The application process may require you to provide information about your business, financial history, and other relevant details. Upon approval, you’ll receive your bond.

4. Pay for, print, and sign your bond.

After approval, fulfill the payment requirements associated with the bond. Once you’ve submitted payment, you’ll receive the bond document. Print a physical copy of the bond and ensure it’s signed as required. This signed document signifies your commitment to adhering to the terms and conditions outlined in the bond agreement.

5. Keep a copy for your records, and send a copy to your state with other necessary paperwork.

Retain a copy of the signed bond for your records. Simultaneously, submit a copy of the bond to the relevant state authorities and any other necessary paperwork. This step is essential for completing the licensing process and demonstrating compliance with state regulations.

Here’s the general process for applying for an auto dealer license. Be sure to check your specific requirements, as they vary from state to state.

• Research state requirements: Familiarize yourself with the specific licensing requirements set by your state DMV or other licensing agency.
• Attend required training (if applicable): Check if your state mandates attendance at a dealer license seminar or training and fulfill this requirement.
• Establish a business entity: Establish a legal business structure for your dealership, adhering to state regulations.
• Secure a business location: Obtain a physical business location that meets zoning requirements and has space for an office and vehicle display.
• Obtain a sales tax number: Get a sales tax number from your state’s revenue or taxation department for collecting and remitting sales taxes.