An auto dealer surety bond is a type of financial guarantee that car dealers must have before starting their business. This bond protects customers from any dishonest or unethical actions by the dealer and ensures that the dealer follows all state regulations. If a customer is misled or defrauded, they can file a claim against the bond to recover their losses.
Who Needs an Auto Dealer Bond?
If you are selling just one or two vehicles personally, you don’t need an auto dealer bond. However, if you plan to sell multiple vehicles or operate a dealership, most states require you to get bonded. The number of vehicles you can sell before needing a bond varies by state, but usually around three or four. If you are buying vehicles to resell, or selling cars from a fixed location, you will likely need a bond. To find out the specific requirements in your state, check with your local Department of Motor Vehicles (DMV) or Visit website for more information.
Steps to Get a Car Dealer Bond and License
To legally operate as a car dealer, you need to meet certain conditions:
- Comply with Local Laws: Your dealership must follow zoning laws and building codes. Contact your city or county office for details.
- Have a Proper Business Location: Your business should be on commercial property with an enclosed building, a permanent sign displaying your business name, and a dedicated space for record-keeping.
- Maintain Regular Business Hours: Your dealership must be open during standard business hours.
- Apply for a Bond: Once you meet these requirements, you need to apply for a bond from an authorized surety bond provider. Many agencies specialize in dealer bonds and can help you find the right one.
Types of Auto Dealer Bonds
There are different types of dealer bonds, including:
- Auto Dealer Bonds – Required for new and used car dealers.
- DMV Bonds – Ensures compliance with DMV regulations.
- RV and Motorcycle Dealer Bonds – For dealers selling recreational vehicles or motorcycles.
- Used Car Dealer Bonds – Specifically for businesses that sell pre-owned vehicles.
Cost of an Auto Dealer Bond
The price of an auto dealer bond depends on several factors, such as:
- The required bond amount in your state.
- Your financial history and credit score.
- Whether you choose to finance your premium.
- Your business’s creditworthiness.
If you have a good credit score, you may only pay 1% of the total bond amount. For example, a $50,000 bond might cost you just $500. If your credit score is lower, you may have to pay a higher premium.
Why Having a Bond is Important
A bond is a legal requirement for selling multiple cars, but it also shows that you are financially stable and trustworthy. A bond protects customers from fraud and ensures comply with ethical business practices. Without a bond, you would have to cover any financial claims out of pocket if a dispute arises.