- INTRODUCTION
If you want to open a car dealership in most U.S. states, you’ll need an auto dealer bond to get a license. This bond protects customers, lenders, and the government in case the dealer breaks any laws or behaves unethically.
- WHAT IS AN AUTO DEALER BOND?
An auto dealer bond is a surety bond required by the government before a business can legally sell vehicles. It ensures that dealers follow all laws and operate their business honestly. A related bond, the Certificate of Title Bond, may also be required in certain situations involving vehicle ownership issues. If a dealer breaks the rules—like selling a stolen car or not paying taxes—the bond can cover the losses.
There are three main parties in an auto dealer bond:
- Obligee: the government or body that demands the bond.
- Principal: The bond is being applied for by the car dealer.
- Surety: The company that issues the bond and promises to cover any valid claims.
- HOW DOES IT WORK?
If a dealer does something wrong—like misrepresenting a car’s condition or failing to provide a valid title—a customer, lender, or government agency can file a claim on the bond. The surety company investigates the claim. If it is legitimate, the dealer is required to reimburse the surety firm once the surety pays the money.
- WHO NEEDS THIS BOND?
Anyone who sells cars, motorcycles, RVs, or any motorized vehicle as a business must have this bond. Without it, you cannot get or keep a dealership license. Selling cars without a valid bond can lead to serious penalties, including losing your license.
- TYPES OF AUTO DEALER BONDS
There are different types of bonds depending on what kind of vehicles you sell:
- New or Used Car Dealer Bond
- Motorcycle Dealer Bond
- RV Dealer Bond
- Wholesale Dealer Bond
- Trailer or ATV Dealer Bond
All these bonds work the same way—they protect buyers and the state from dishonest business practices.
- COST OF AN AUTO DEALER BOND
The cost of the bond depends on your state, credit score, and business history. You will typically pay 1% to 5% of the bond’s entire amount. For example, if your state requires a $25,000 bond, you might pay $250 to $1,250 per year.
You could have to pay more if your credit isn’t flawless. However, many companies offer bonds even to those with low credit, sometimes requiring extra paperwork or collateral.
- HOW TO GET AND RENEW A BOND
To obtain an auto dealer bond, you must:
- Fill out an application.
- Undergo a credit check.
- Provide documents about your business and financial status.
Once approved, you’ll pay the premium and receive the bond. The majority of bonds have a one-year expiration date and need to be renewed every year. If your bond expires, your license will become invalid, and you must stop selling vehicles until it’s renewed.
