What is a used car dealer bond?
Used car dealer bonds are a type of auto dealer bond that protect future customers and your state if you operate your business illegally or unethically. The official name for this bond is often “Used Motor Vehicle Dealer Bond.” You’ll know if you need this bond when you apply for your state business license.
Used car dealer bonds are prerequisites in many states for used car dealers to obtain state licensure. However, not all states require a “used car dealer bond” specifically. Some states, like Georgia and Texas, differentiate between new and used car dealer licenses and have distinct requirements for each type of dealer. Others have the same licensing requirements for different kinds of dealers and require a general auto dealer bond.
Get Your Used Car Dealer Bond:
- Used car dealer bonds are prerequisites in many states for used car dealers to obtain state licensure.
- Generally, you’ll need a license and bond to sell at least 2-6 used cars a year.
- Your obligee – most likely your state DMV – will tell you the bond amount you need to obtain your used auto dealer license.
- Your bond’s cost will depend on your state bonding requirement and credit score.
How do used car dealer bonds work?
Used car dealer bonds are three-party contracts between a principal, an obligee, and a surety. They financially protect your clients and the state if you break the law or act unethically.
- Principal: The used auto dealer or dealership posting a surety bond
- Obligee: The governing authority requiring the bond and issuing the license (often the Department of Motor Vehicles)
- Surety: The company that issues the bond and backs it financially in the case of claims
Your obligee – most likely your state DMV – will tell you the bond amount required to obtain your license. To get your bond, you’ll apply with a surety provider (like ZipBonds) and pay a premium.
Your surety provider guarantees immediate payment for damages – up to the bond’s limit – if someone files a valid claim against you. The catch is that you must reimburse your surety for all claim-related costs. So it’s best to avoid claims whenever possible.
Who needs used car dealer surety bonds?
Most states require auto dealer bonds (for new or used car dealers) or used car dealer bonds. Definitions for used auto dealers differ by state but generally include those that buy, sell, or use motor vehicle parts.
In Colorado, for example, a “used motor vehicle dealer” includes anyone who owns real property and allows more than three used vehicles to be offered for sale during one calendar year – unless the property is leased to a used motor vehicle dealer.
In general, if you sell at least 2-6 used cars a year, you’ll probably need a license in your state (and a bond to accompany it). If you’re unsure of your requirements, check with your DMV or licensing body.
Different Types of Used Car Dealers
Here are several types of auto dealerships that sell used vehicles:
- New car dealerships: Many dealerships that sell new cars also sell used and certified pre-owned cars, often from a specific manufacturer.
- Independent used car dealerships: These dealerships don’t typically have a direct connection to a specific manufacturer. They usually sell all used cars.
- Salvage dealerships: These dealerships typically sell junk and salvage motor vehicle parts.
You may need an auto dealer bond, a used car dealer bond, or an automotive dismantler bond (for salvage dealerships), depending on your state requirements and the types of vehicles you wish to sell.
Frequently Asked Questions
The cost of your bond will depend on the bond amount required in your state and your credit score. Sometimes states require used car dealers to obtain smaller bonds than new car dealers. The number of vehicles you sell in a year can also influence your bonding requirements.
For example, used car dealers in Connecticut must post a $60,000 bond. Used auto dealers in Georgia are required to post a $35,000 bond.
You’ll pay a small percentage of the bond amount to obtain your bond. The better your credit score, the lower your rate will be. If you have excellent credit, you could pay as low as 0.5%, which would be $175 in Georgia.
If you have a poor credit score, you may still be able to get bonded for a higher premium rate – often 5-10% of the bond amount.
Many used car dealer bonds expire annually or every other year. Your expiration date will be listed on your bond form. Remember to renew your bond before expiration to continue running your business legally.
If you break your bond contract or licensing agreement, someone may file a claim on your bond. This can happen if you commit fraud in your business, break the law, or act unethically – in a way that costs a client or the state money. Valid claims will be covered by your surety initially. However, you’ll be held responsible for repaying your surety for all claim-related costs.
Claims can damage your business’s reputation and ability to get bonded again. To avoid a claim situation, always operate your business legally, following all state regulations regarding your industry, and address any concerns that arise immediately. Unanswered complaints can turn into costly claims. Honor warranty agreements, transfer vehicle titles legally, and pay all taxes on time.
How to Get a Used Car 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. Get your used auto dealer bond by applying below – or call us directly at 888-435-4191. We’d be happy to walk you through the process!
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.