An auto dealer bond is a legal agreement that protects your customers and the state when you operate a car dealership. Many states require car dealers to have this bond before they can get or renew their dealer license. The bond ensures that you follow all the rules related to selling vehicles.
How Much Does an Auto Dealer Bond Cost?
The cost of an auto dealer bond depends on a percentage of the bond amount you need. This percentage, called the bond premium, is influenced by several factors such as your credit score, the bond amount required, and the regulations in your state. For example, if you need a Certificate of Title Bond for $50,000, the cost could range from 1% to 10% of that amount. This means you might pay between $500 and $5,000 per year for the bond. You only have to pay the full bond amount if a claim is made against you for that value.
Getting a Dealer Bond with Poor Credit
Even if your credit is not perfect, you may still be able to get an auto dealer bond. However, bond companies closely check your credit during the approval process because they want to understand the risk of you making a claim and your ability to repay it. If you have unpaid debts, collections, or tax issues, this might raise concerns and cause higher bond costs or denial. Still, some bond providers approve bonds for people with bad credit but often charge higher premiums.
What Does an Auto Dealer Bond Cover?
This bond mainly protects your customers and the state agency that requires it, not the dealer directly. If you commit fraud or break any rules during vehicle sales, the bond allows your customers to file claims. The surety company pays these claims first, but expects you to repay them. Besides protecting your customers, having this bond is also part of your license requirements and helps show you are a legitimate business.
Types of Auto Dealer Bonds
Depending on your state and the type of vehicles you sell, you might need different kinds of dealer bonds. The common ones include:
New car dealer bonds
Used car dealer bonds
Wholesale dealer bonds
Mobile home dealer bonds
Steps to Get an Auto Dealer Bond
Find Out Your State Requirements: Not all states require the same bond amount or type. Check what is needed for your location and business.
Apply for Your Bond: Once you know the bond amount, apply with a surety company or bond provider. They will review your credit and other details.
Submit Your Bond to the State: After approval, sign the bond and send it to the state along with any other paperwork. The state will then issue your dealer license.
Protecting Your Business Beyond the Bond
Besides the bond, consider other protections to keep your dealership safe. Incorporating your business helps protect your assets and adds credibility. Also, insurance coverage for property damage, liability, and employees is important. Some dealers also choose fidelity bonds to protect against employee theft.
