What is an Auto Dealer Bond?
An auto dealer bond works as an extra level of protection for car buyers across the U.S. It’s a safe financial mechanism that guarantees you will follow the law in your work as a car dealer.
The bond is required by the authorities that license auto dealers in your particular location.
Who needs an Auto Dealer Bond?
All types of dealers may need an auto dealer surety bond, depending on the licensing requirements of state or local authorities.
This means you are likely to need a bond if you fit into any of the following categories of dealers:
| Auto Dealer Bond Cost Table | ||
| State and Dealer Type | Bond Amount | Starting Price |
| California retail vehicle | $50,000 | $500 |
| California motorcycle, all-terrain and wholesale | $10,000 | $100 |
| Utah new or used motor vehicle or large trailer | $75,000 | $750 |
| Utah motorcycle or small trailer | $10,000 | $100 |
| North Carolina new or used dealer and auto recycler | $50,000 | $500 |
| Arizona recycler | $20,000 | $200 |
| Arizona broker, wholesale auto auction dealer, and wholesale motor vehicle dealer | $25,000 | $250 |
| Arizona new and used dealer and public consignment auction dealer | $100,000 | $1,000 |
| Florida auto dealer bond | $25,000 | $250 |
| Texas auto dealer bond | $25,000 | $250 |
How much does an Auto Dealer Bond cost?
The cost of your car dealer surety bond is determined by how strong your personal and business finances are. Your personal credit score has the biggest impact on the price.
Your surety bond cost is a percentage of the bond amount you’re required to obtain by the licensing authorities. Applicants with credit scores of 650 and above can expect a bond premium between 1% and 3% of the bond amount.
The table below lists some of the most common dealer bonds that we sell. For each bond, you can check out the bond amount and the respective starting bond price:
What does an Auto Dealer Bond cover?
The bond provides protection to your customers in a range of situations.
The most common cases when the bond coverage can be activated include:
- Breach of warranties
- Fraudulent financing schemes
- Title transference issues
- Misleading information about sold vehicles
- Interference with odometer readings
- Non-payment of sales tax or fees and inaccurate reporting
- Other potential breaches of dealer licensing requirements
In such situations, a harmed client or other parties can file a claim against the auto dealer bond to demand fair compensation.
What you need to keep in mind with getting an Auto Dealer License?
The licensing process for dealers across the country varies because it’s set by different licensing authorities on the state or local level.
You’ll typically have to provide a set of documents, including:
- Business entity registration documents
- Training or examination proof
- Tax and/or IRS registration
- Insurance policy (requirements are set at the individual state level)
What happens if you have bad credit?
Bad credit can be a serious hamper to getting bonded. The reason is that your credit score is one of the main factors in the bond cost formation.
At our family-run surety agency, we know that it’s difficult to run a dealership when you’re facing financial issues. That’s why we offer dealers the ability to obtain the necessary bond even if they’re struggling with bad credit by opting to set-up convenient payment plans.
How to get an Auto Dealer Bond
Here’s how to obtain your dealer bond in a few easy steps:
- Complete our 5-minute application process online
- Receive a quick quote from YCDB in less than eight business hours
- Buy your bond with no hassle
FAQs about Auto Dealer Bonds
The applicant must be approved by a surety bond company. The bonding company is making a promise to the obligee (the DMV in this case) that the dealer will follow applicable states and federal regulations and pay all their bills. You can apply for your surety bond seamlessly on our website. Regardless of your situation, we feel that you will really appreciate the high level of experience and the deep care we take with every dealer that comes our way.
This is the #1 most common question we receive even though it’s actually a DMV pre-licensing test question. The answer is a little complicated but hopefully, this makes sense. There is a carve-out in the law that allows a $10,000 bond for motorcycle-only retail dealers. The only additional exception is made for wholesale-only dealers that are selling less than 25 vehicles per year. All other wholesale, auto broker, or retail car dealers need a $50,000 bond.
The most common reason we see for a high-priced bond is the dealer not having established credit. In this scenario, no credit is basically the same as bad credit. There are a few reasons why folks don’t have established credit when they are getting their dealer license. Simply being young and not having loans that have been set up through a bank may be the most common. The other reason that is common with Used Car Dealers is that the individual likes to pay for everything with cash.
Some folks buy into the logic that they never want to buy anything that they can’t pay for on the spot. While that is a great approach, it doesn’t help establish credit. The process of building credit will take some time but getting a credit card with a very low limit can help quite a bit. Buy $25 – $50 worth of items every month and pay the card off within 2 or so weeks of the charges.
With about 6 months of this process, you will be in a good position to call your credit card company and ask them to increase your credit limit. Then keep doing the same thing. The fact that you have never been late on a single payment will look great. Also having available credit that you are not utilizing will also improve your overall credit profile.
You should see a nice increase in your credit score with this strategy and will be in good shape to renew your bond at a much-reduced cost as your Experian Credit Score improves.
Your Auto Dealer Bond should be active by the time you plan to see your DMV inspector to get licensed. For instance, if you place to the see the inspector on the 3rd Thursday of the month, your bond should be active on that Monday or Tuesday latest. Most dealers like to get the most for their money so they don’t want to pay for any dead time but this is strategy could save you as much as a week of time as you will read about in the next question.
The DMV inspectors workloads can vary quite a bit and on occasion. It’s usually as simple as that. The inspector will get through more work than they originally had scheduled and have some extra time. Why? Potential dealers often times submit incomplete packages that have to be bypassed. Imagine that you were originally scheduled for a Thursday appointment. But if your inspector has a break in their schedule, they may call you on a Tuesday to come in. This means if you have everything in order, you get licensed 2 days faster. This puts you at the action this week instead of next week!
Again, keep in mind the point of view of the Board of Equalization and the Department of Motor Vehicles. They both need to wet their beaks or they will eventually be banging on your door wondering how you could really be a business if you only buy but never sell vehicles. Remember the BOE needs to get paid on your profit and the DMV needs to get paid on the registration of that car (or truck). A good approach is to hold whatever car you like for 6 – 8 months and then sell it. With any luck, you will even be able to scrape a profit in the process. Most people in a position to do this for fun aren’t looking to make massive profits from this business model. They are content with just drive a beautiful car around for 8 months before selling it. Then having reconditioning, insurance, and maintenance associated with that vehicle be a business expense before selling it for a profit. Then rinse and repeat!
A bond is required of any dealer that is involved in the sale of motor vehicles such as new, used, wholesale, RV, motorcycle, auction, and other types of vehicles. In most states, dealers are even required to obtain a surety bond as a prerequisite for licensure.
Just apply online today with YCDB for a free quote. You will receive it in less than 8 business hours.
It is very important for you as a dealer to ​​be aware of the circumstances that can bring a claim against your dealership. The safest way to avoid auto dealer bond claims is to maintain pristine paperwork, be transparent with your customers, and always stick to your legal obligations, which are set in the bond language.
You’ll need a separate car dealer bond for each state you want to operate in. Each state has different requirements for licensing and bonding, so you will have to oblige with the respective state regulations and get a separate bond for every state.
An auto dealer bond works as an extra level of protection for car buyers across the U.S. It’s a safe financial mechanism that guarantees you will follow the law in your work as a car dealer.
The bond is required by the authorities that license auto dealers in your particular location.
All types of dealers may need an auto dealer surety bond, depending on the licensing requirements of state or local authorities.
This means you are likely to need a bond if you fit into any of the following categories of dealers:
- New car dealers
- Used car dealers
- Retail car dealers
- Wholesale car dealers
- Car auction dealers
- Motorcycle dealers
- RV dealers
The cost of your car dealer surety bond is determined by how strong your personal and business finances are. Your personal credit score has the biggest impact on the price.
Your surety bond cost is a percentage of the bond amount you’re required to obtain by the licensing authorities. Applicants with credit scores of 650 and above can expect a bond premium between 1% and 3% of the bond amount.
The table below lists some of the most common dealer bonds that we sell. For each bond, you can check out the bond amount and the respective starting bond price.
The bond provides protection to your customers in a range of situations.
The most common cases when the bond coverage can be activated include:
- Breach of warranties
- Fraudulent financing schemes
- Title transference issues
- Misleading information about sold vehicles
- Interference with odometer readings
- Non-payment of sales tax or fees and inaccurate reporting
- Other potential breaches of dealer licensing requirements
In such situations, a harmed client or other parties can file a claim against the auto dealer bond to demand fair compensation.
Here’s how to obtain your dealer bond in a few easy steps:
- Complete our 5-minute application process online
- Receive a quick quote from YCDB in less than eight business hours
- Buy your bond with no hassle
The licensing process for dealers across the country varies because it’s set by different licensing authorities on the state or local level.
You’ll typically have to provide a set of documents, including:
- Business entity registration documents
- Training or examination proof
- Tax and/or IRS registration
- Insurance policy (requirements are set at the individual state level)
