Your Guide to Auto Dealer Bonds

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What is an auto dealer bond?

Before someone can obtain a motor vehicle dealer license, they must post a surety bond that ensures compliance with industry regulations. An auto dealer bond is a type of license and permit bond. You may see it described using different names, depending on the state you’re in. Here are a few of them:

  • Car dealer bond
  • Auto broker bond
  • Motor vehicle dealer bond
  • Auto bond
  • Auto dealer surety bond

These bonds are legal contracts to protect consumers against unethical business practices. They help hold dealerships accountable to industry and state regulations.

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Quick Takeaways

  • Before someone can obtain a motor vehicle dealer license, they must post a surety bond that ensures compliance with industry regulations.
  • A customer can file a claim if a dealer commits a fraudulent, unethical, or other unlawful business activity.
  • Used auto dealer bonds, new auto dealer bonds, wholesale dealer bonds, and mobile home dealer bonds are four types of auto bonds.
  • You could pay as little as 1% of the total bond amount as your annual premium.

How does an auto dealer bond work?

Auto dealer bonds help protect customers from dealerships and their employees. They may also protect financial institutions and the state from potential financial loss.

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

This surety bond connects three different parties:

  1. Principal: The auto dealer or dealership that needs the bond
  2. Obligee: The state DMV requiring the bond
  3. Surety: The company providing the bond

How much does an auto dealer bond cost?

The cost of your auto dealer bond will depend on your state and the required bond amount. You could pay as little as 1% of the total bond amount as your annual premium if you have excellent credit. For example, if your state requires a $25,000 bond, you might pay $250 per year.

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

Who needs an auto dealer surety bond?

Automobile dealers in most states need to post a dealer bond, as required by the Department of Motor Vehicles (DMV). This is typically part of the process of obtaining a license to do business. If you purchase, sell, or trade vehicles, you likely will need a surety bond and dealer license.

Different Types of Auto Dealer Bonds

Used auto dealer bonds, new auto dealer bonds, wholesale dealer bonds, and mobile home dealer bonds are four specific types of auto bonds. The bond you need will depend on your state and the type of vehicle you want to sell.

Can I get a dealer bond with bad credit?

Credit history helps sureties determine an applicant’s likelihood to trigger a bond claim. Some bonding companies may approve you for an auto dealer bond if you have a poor credit score, while others may not. If you’re approved, the cost of your bond may be higher than if you had excellent credit.

Auto Dealer Bond Requirements

To obtain your auto dealer bond and get your license, follow these six simple steps.

  1. Learn the requirements for your state.
  2. Find the specific bond you need for your business.
  3. Apply for the bond to get approved.
  4. Pay for, print, and sign your bond.
  5. Keep a copy for your records, and send a copy to your state with other necessary paperwork.
  6. Once the state receives your bond, they can send you a business license.

How to Get an Auto Dealer Bond in Your State

ZipBonds is the fastest and most secure way to get the bond you need. We take out the pain of long, complicated applications. Most of our bonds are approved and processed immediately. Get your auto dealer bond today by applying below – or call us directly, and we’d be glad to walk you through the process.

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About ZipBonds.com

Founders Ryan Swalve and Zach Mefferd formed the vision for ZipBonds.com when they realized how overly complicated it was to help clients place surety. The frustration of being unable to incorporate the technology they’d used in other insurance-focused projects left them thinking “there has to be a better way.”

Fast forward a couple of years, and that better way is the impetus of everything we do at ZipBonds. We constantly look for innovative ways to improve the bonding process for our clients and agents. Our team comprises individuals who understand all angles of surety – for companies, agencies, and individuals. Incorporating everyone’s point of view to improve the process while simultaneously integrating cutting-edge technology is what sets our business apart.