Surety Bonds

Auto dealers in most states must file a surety bond with the state's Department of Motor Vehicles (DMV) before they can receive their auto dealer license. Unfortunately, purchasing an auto dealer bond can be one of the most confusing parts of getting a dealer license. That’s why we developed the following comprehensive guide to auto dealer bonding.

Why do I need a surety bond?

As with other surety bond types, auto dealer bonds provide financial guarantees that help regulate the industry. Auto dealer bonds protect customers, sellers, financial enterprises and/or governmental agencies. If a dealer commits fraud or conducts business in other unethical ways, the bond helps these entities recover from any resulting financial loss.

Depending on where you work and what kind of dealership you plan to operate, you might need to file one of many different auto dealer bond types. Some common ones include

• DMV bonds
• RV bonds
• motorcycle dealer bonds
• used car dealer bonds
• wholesale car dealer bonds

No matter the specific name of the bond, they work in the same basic way. If a bonded motor vehicle dealer breaks the bond's terms, the wronged party (i.e. a customer, bank or government agency) can make a claim against the bond to get reparation.

How do I know if I need a surety bond?

Whatever state agency is in charge of licensing auto dealers should tell you if you need a bond before you begin the application process. If you haven't been told that you need a bond, it's a good idea to contact the agency and make sure you don't need one. You might also take the time to learn more about the dealer licensing process in your state.

How much does a surety bond cost?

The exact price you'll pay for a surety bond will vary for a few reasons, such as:

• the surety bond amount (i.e. whether you need a $10,000 or $50,000 surety bond)
• your application and financial credentials
• if you choose to finance your bond premium

If your financial credentials qualify you for the standard market, your premium could be calculated as just 1% of the bond amount, which would only be $500 for a standard $50,000 bond. Conversely, dealers with poor credit could pay a premium that's a higher percentage of the bond amount. The best way to determine your exact surety bond cost is get a free price quote from a surety provider.