An Auto Dealer Bond is an essential item auto dealers need to get in place when opening a new or used car dealership. Most states require this car dealer surety bond before an auto dealer can be licensed. The car dealer bond ensures that customers are protected financially if the motor vehicle dealer fails to meet its obligations.
If you have prepared a car dealer license application, have gone through a criminal background check, obtained insurance, and paid your dealership license fees, you’re still not done unless you have fulfilled the requirement of an Auto Dealer Bond requirement!
In most cases, motor vehicle dealers need to be bonded and insured to get your auto dealer license as per the department of motor vehicles.
An auto dealer surety bond protects the state and your customers, whereas liability insurance covers your business and the vehicles on your lot. It’s the state licensing authority method of making sure you’re complying with applicable laws and state regulations. It also takes care of your customers and protects them from potential fraudulent business methods.
How to apply for a Car Bond?
The process for getting an Auto Dealer Bond is simple.
- Like all surety bonds, auto dealer bonds are underwritten by surety bond companies. In many cases, there is a division of insurance companies called Sureties.
- Surety bonding companies generally do not work directly with the public, so you will need to find a reputable surety agency such as Simpli Surety to obtain your motor vehicle dealer bond.
- After choosing a bonding company from which you will get your bond. You will then have to fill out the auto dealer bond application provided by the surety insurance agency and submit it to them for review. At Simpli Surety, our process is entirely online, and we’ll have you approved and bonded in minutes if you qualify.
- When applying for your car dealer bonds, you will see a quote showing the premium or surety bond cost.
How is my Motor Vehicle Dealer Bond Premium Calculated?
The premium for your surety bonds will be calculated by the surety company that issues them. Your credit score is one of the factors they take into consideration when calculating your premium. The better your business or personal credit score, the lower the percentage of the bond amount that you will likely pay in annual premium.
For example, if a motor vehicle dealership has been in business for many years or your credit score is high, the premium rate will likely be lower. However, some states may charge a specific flat fee – regardless of other factors.
Can I get a Car Dealer Bond with Bad Credit?
Having bad credit and other credit issues, such as tax liens, civil judgments, or past bankruptcies, puts you in a high-risk category. This may increase your auto dealer bond cost to a range of 5 to 15%. But if you provide your agent with strong financial statements, cash verification, or strong liquid assets, you can lower your premium and save money.
Once I obtain an Auto Dealer Bond, when and how do I renew it?
How often you renew your auto dealer bond will depend on your state’s requirements and license law.
Most states require you to renew your license annually, which means you must also renew your auto dealer bond every year. With Simpli Surety, you’ll never have to worry about missing your renewal date. Our team will notify you before the due date and send you an online bond renewal application.
How Much Does an Auto Dealer Bond Cost?
The cost of an auto dealer surety bond depends on many factors, including the state you plan to do business. As for typical premium rates, most dealers will end up paying around 1% to 8%. However, some factors may increase (or decrease) that number.
Two main factors determine the premiums a dealer will pay for a surety bond:
- Bond amount: Motor vehicle dealer bonds must comply with each state’s financial performance guarantee requirements. Typically, these are referred to as “bond penalties,” which indicate the amount of coverage required. The premium usually is 2-3% calculated off the bond amount for dealerships with a good credit history. There are cases where the premium can be as low as 1%, especially for dealers who have been in business for more years or have a long history of being bonded without claims.
- Credit Score: Credit score is a critical variable in determining how a surety will charge a dealer for obtaining a surety bond. Regardless which surety bond is issued or in which state, a surety always wants to know that the applicant has the financial capacity to pay off any bond claims. Thus, an applicant with a credit score of less than 625 will typically pay a higher premium to obtain a surety bond than an applicant with a score higher than 625.
Simpli Surety can help you obtain a motor vehicle dealer bond, even if you don’t have a high credit score.
Most individuals starting a vehicle dealership need an auto dealer surety bond, but it doesn’t have to be a difficult or time-consuming process. We work with A-rated sureties to offer competitive rates for car dealer bonds.
Is a credit check required to purchase a dealer bond?
Yes, the surety underwriter will assess the applicant’s business and personal credit to decide if you qualify for car dealers bonds. Many companies will use a “soft check” to avoid adverse credit effects. Credit ratings and data are also an essential part underwritten in auto dealer bonds by the insurers.
How do I find dealer bonds?
One of the easiest ways to find a motor vehicle dealer bond is to use Simpli Surety’s car dealer bond search, which uses your state to instantly see all available surety bonds for dealerships in your area.
Search for your online surety bonds now.
