Auto Dealer Bonds: Everything You Need to Know
Estimated Read Time: 4 minutes
10-27-2022
Looking to become a motor vehicle dealer? Maybe you’re already a dealer searching for more information. In all 50 states, a surety bond is required to be a licensed car dealer. This article covers what a surety bond is, how much it costs, and how to get an Auto Dealer Bond.
The Purpose of Auto Dealer Bonds
Auto dealer bonds are a security tool used by state regulatory agencies to guarantee compensation to a person or entity when a licensed vehicle dealer fails to comply with the regulations, whether intentionally or negligently.
Manipulating an odometer or failing to deliver a vehicle’s title are just two reasons a customer could seek reimbursement via the surety bond. Obligees (regulatory agencies) also have jurisdiction to file a bond claim.
Bonds hold the licensee financially accountable, and are essentially a “line of credit”. The surety company will provide compensation in the event of a claim, but rather than affording protection to the licensee, the bond provides protection to the public—more details on claims below.
Who Needs a Motor Vehicle Dealer Bond?
There are a few different dealer classifications required to hold a surety bond. Here are a few common ones:
- Franchise (new) vehicle dealer
- Used vehicle dealer
- Wholesale vehicle dealer
- Motorcycle dealer
There are niche dealer types that may need bonds, such as snowmobile dealers, trailer dealers, and even vehicle auctions.
Auto Dealer Bond Cost
The cost is dependent on three main factors: (1) the bond limit, (2) the personal credit of the dealer, and (3) years of experience. You can rest assured that the bond cost is only ever a small percentage of the bond limit, regardless of credit
If you are interested in learning about state-specific requirements and costs, check out our Auto Dealer Bonds page and select the state you are doing business in.
Jet’s direct distribution model removes the middleman, allowing us to provide our customers with the best bond prices with no added fees. You have the option to choose convenient monthly payments or discounted annual or multi-year rates.
Claim Process for Auto Dealer Bonds
Once a claim is filed on the motor vehicle dealer bond, the surety company (Jet) is notified. The surety company completes its own investigation by reviewing the details and documents to confirm the claim’s validity.
If proved just, a payout is made to the claimant (person or entity pursuing the claim) up to the bond limit. That’s not the end though—the principal must reimburse the surety company for the full claim amount; this is because surety bonds are unlike insurance, and claims are only paid out for intentional and fixable issues the auto dealer fails and/or refuses to address.
For more information on claims, read our Auto Dealer Bond Claims Guide.
Ready to Apply?
Once you’ve paid for the bond, it will need to be filed. Sometimes, Jet can do this for you, depending on the obligee’s requirements. Most auto dealer bonds are renewed on an annual basis. Keep track of your bond renewal date to ensure no lapse in coverage. Jet will also send you an email when it is time for renewal.
