By law, auto dealers must obtain a surety bond before receiving a license to operate. This bond, commonly called an auto dealer bond, helps protect consumers and ensures dealers follow state and industry regulations. Whether applying for a new license or renewing an existing one, all motor vehicle dealers must meet their state’s car dealer bond requirements. JM Surety offers fast, affordable bonding solutions to help dealers stay compliant.
What Is an Auto Dealer Bond?
Definition and Purpose of a Vehicle Dealer Bond
A motor vehicle dealer bond is a license bond required by most states for individuals or businesses that sell vehicles. Also known as an auto or car dealer bond, it is a financial guarantee that the dealer will follow applicable laws and ethical business practices.
If the dealer fails to comply with licensing regulations—such as providing valid titles, disclosing vehicle history, or remitting fees and taxes—a claim can be filed against the vehicle dealer bond. If the claim is valid, the surety company may compensate the affected party and then seek reimbursement from the dealer.
This type of bond is not insurance for the dealer but rather a protection for the public and the state.
How It Works
A vehicle dealer bond is a three-party agreement:
- The principal is the auto dealer required to hold the bond.
- The obligee is the state agency that mandates the bond.
- The surety is the company, such as JM Surety, that issues the bond and guarantees payment in case of a valid claim.
The bond must remain active and in good standing for the dealer’s license period. If the bond is canceled or lapses, the license may be suspended or revoked.
Who Needs a Motor Vehicle Dealer Bond?
New and Used Car Dealers
Most states require new and used car dealers to obtain an auto dealer bond as part of the licensing process. This applies to independent dealers, franchise dealerships, and wholesale vehicle operations. The bond must be secured before the state issues or renews a motor vehicle dealer license.
Individuals and Businesses
Whether operating as a sole proprietor, partnership, LLC, or corporation, anyone involved in the sale of motor vehicles must hold a valid car dealer bond. This includes:
- Independent used car dealers
- Franchise auto dealers
- Wholesale vehicle distributors
- Motorcycle or RV dealers (in some states)
JM Surety helps all applicants meet their vehicle dealer bond requirements quickly and efficiently.
State Licensing Requirements
Each state sets its own bond amount and licensing requirements. While most states require the bond as part of the dealer license application, the amount of bond needed can vary based on:
- Type of vehicles sold (e.g., cars, motorcycles, trailers)
- Number of vehicles sold annually
- Dealer’s business model (retail, wholesale, auction, etc.)
Because requirements differ, applicants must understand their state’s specific rules before applying. JM Surety offers bonding services nationwide and can help determine the correct auto dealer bond based on the applicant’s location and license type.
Cost of an Auto Dealer Bond
Factors That Affect Bond Pricing
The state sets the total amount of an auto dealer bond, but dealers only pay a small percentage of that amount as a premium. This premium is based on several factors, including:
- Credit Score: Strong personal credit typically results in lower bond premiums.
- Business Experience: Established dealers with industry history may qualify for preferred rates.
- Financial History: A stable financial background can help reduce the bond cost.
- State Requirements: Some states have higher bond amounts, directly impacting the premium.
JM Surety evaluates each application individually to provide the best rate based on these criteria.
Estimated Bond Costs
Most motor vehicle dealer bond premiums range from 1% to 10% of the total bond amount. As an example:
- Dealers with excellent credit may pay as little as $250 to $750
- Dealers with credit challenges may see premiums ranging from $1,000 to $3,000.
JM Surety offers options for all credit profiles and works to keep premiums as low as possible.
Renewal and Multi-Year Discounts
Auto dealer bonds must be renewed annually or as required by state regulations. Sometimes, JM Surety offers multi-year discounts for dealers who pay for multiple years in advance. Renewing without claims or license issues may also result in better rates.
How to Get an Auto Dealer Bond
Step-by-Step Bond Process
Obtaining a vehicle dealer bond through JM Surety is straightforward. Dealers can expect fast approvals and clear communication throughout each step.
- Submit an Application
- Provide basic business details, contact information, and license type. The application can be completed online in minutes.
- Credit Review
- JM Surety performs a soft credit check to determine the premium rate. This check does not affect the applicant’s credit score.
- Receive a Quote
- Applicants receive a bond quote based on credit, experience, and state requirements.
- Pay the Premium
- Once the quote is accepted, the dealer pays the premium to activate the bond.
- Bond Issuance and Filing
- If required, JM Surety issues the auto dealer bond and files it with the appropriate state agency. A copy of the bond is also sent to the applicant.
Timeline
Most bonds are approved and issued within the same day. In many cases, JM Surety can email the bond in minutes once payment is processed, helping dealers avoid licensing delays.
Common Questions About Auto Dealer Bonds
Get Your Auto Dealer Bond Today
JM Surety makes getting the auto dealer bond you need for your motor vehicle dealer license easy. With competitive rates, flexible credit options, and same-day bond issuance, JM Surety helps auto dealers stay compliant and focus on their business.
Apply online today to receive a free quote with no obligation. Have questions? Contact our team for expert guidance and support.
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