Are you a motor vehicle dealer? For you to get a license, you have to meet the auto dealer bond requirements for your state. The bond is a guarantee that you will follow all the rules and regulations set by the state Department of Motor Vehicles (DMV). This requirement is standard for all dealers selling new and used motor vehicles, motorcycle dealers, and vessel dealers among other vehicles. The requirements vary from one state to the next, and you cannot use the same bond for two states. Although there are blanket requirements for the dealer bond application, you need to confirm what your state requires.

What is an Auto Dealer Bond?

To operate as a motor vehicle dealer anywhere in the United States, you need a business license. As a prerequisite for the auto dealer license, you need a surety bond. Also referred to as motor vehicle dealer bond or car dealer bond, the bond guarantees consumers that your business will operate ethically and legally as the Law requires. States set out the specifics of the new or used car dealer bond.

The auto dealer surety bond extends credit to a dealership whenever the dealer needs to pay out claims. The bond type that a car dealer needs depends on the type of business they operate. For instance, a car dealer selling used motor vehicles will need a surety bond that is different from what a motorcycle and wholesale dealer needs.

Each state sets out the laws on which dealers need bonds and the kind of bonds they need. Talk to an expert from your state and get a free quote before sending the bond application.

How Does an Auto Dealer Bond Work?

There are three parties that make up the auto dealer bond; the auto dealer (who is the principal), the DMV (obligee), and the surety company (the surety bond provider). A surety bond is a form of credit given to a car dealer to compensate a customer in case of a claim resulting from damages that the customer incurs.

Only a licensed surety company can issue the auto dealer bond. After the bond is issued, the auto dealer needs to pay an annual bond premium. With the annual premiums, the car dealer is covered as long as they do not miss paying the premiums. With the car dealer surety bond active, the obligee is assured that the car dealer will follow the set rules and regulations in the state. If the auto dealer fails to follow the rules and it ends up causing damages to the consumers, the surety bond company steps in and compensates the customer for their damages.

If a customer makes a claim, the surety bond company covers the costs only to the amount of the bond. The motor vehicle dealer will then have to reimburse the surety the cost of the compensation at a later date. Motor vehicle dealers, therefore, need to avoid claims to ensure they continue operating.

The motor vehicle dealer surety bond covers negligence, fraudulence, and unethical business practices. Check with your state to see the requirements set by the DMV. Some of the issues that may need compensation include:

  • Re-adjusting the odometer for a used car dealer
  • Fraudulent transfer of car title
  • Failure to honor warranties
  • Failure to pay taxes and any other fees
  • Failure to report sales
  • Giving false information to customers on the state of vehicles
  • Failure to follow set auto dealer licensing conditions
  • Use of dubious financing means

Do I Need an Auto Dealer DMV Bond?

To operate in any state as a motor vehicle dealer (MVD), you need a license. As a prerequisite to getting that license, you need a motor vehicle dealer surety bond. Different states have different definitions of who a dealer is. However, in most states, a dealer is someone who buys or sells more than two motor vehicles in a year. Check with your state DMV to know how many vehicles you need to buy or sell to necessitate the need for a license.

There are individuals and parties that are exempt from this rule. For instance, if you buy and sell cars for personal use, you do not need a license. Again, if you are a lending institution that repossesses and disposes of motor vehicles, or you are a government agency or an appointee of the court selling cars, you will not need a license.

The bond amount you pay is dependent on the class of license you need to apply. You can have a license that is for new or used motor vehicle dealers, a wholesale dealer license, or a miscellaneous vehicle dealer license.

How Much Does an Auto Dealer Bond Cost?

The surety bond cost is between 0.5% and 10% of the total bond amount every year. You will pay a specific amount based on the type of license you need to apply for. For instance, you will need to post about $30,000 bond for motor vehicle dealer licensing and about $5,000 for a miscellaneous vehicle dealer license. The bond premiums you pay every year will depend on several factors, including your personal credit, your experience as an auto dealer, and your business finances.

If you have a good credit score, you will pay less in premiums, but if you have bad credit, your yearly premiums will go up. You need to get a surety bond quote from different bonding companies and decide what is best for you. Also check out our surety bond cost guide and our surety bond cost calculator to know how much you will pay every year.

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How to Apply for an Auto Dealer Bond

Before you apply for the dealership license, contact your state DMV to gather all the information you need about dealer licensing. Before you start asking for a free bond quote from companies, ensure that you have the following information in order:

  • A legal car dealership business name and permanent operation premises
  • Address and phone number of your business
  • Name of the owner, their address, and social security number
  • Number of years in business

If you need a large bond amount, for larger car dealers, you may need to submit the financial statement of your business. Whether you need a new or used motor vehicle dealer license, having sufficient working capital shows that your business is stable. To get an affordable bond you also need a good credit score to lower the bond premiums you pay every year. Get a bond quote and check the premiums to see what is affordable.

Start your surety bond application today! Why us?
  • Quick turnaround - just 1-2 business days
  • Tailor-made advice on building a strong application
  • Exclusive bad credit programs

Can I Get an Auto Dealer Bond With Bad Credit?

When attempting to get bonded with bad credit, expect to be offered a higher rate. Even if you get the bond, most bond companies will require that you pay expensive premiums. However, you can still get bonded and not have to pay exorbitant premiums. Our Bad Credit Program is tailored to help auto dealers with a less-than-perfect credit score get a motor vehicle dealer bond.

Please complete our online application today and see your bond options. You can also get a quote today and start planning on how to run your business instead of worrying about the bond. You never have to leave your home to apply for the bond, thanks to the swift online application process. Ensure you have all the needed information as required by the authorities and then call us.

About us:
Bryant Surety Bonds, Inc. is a surety bond agency based in Pennsylvania. Licensed in all 50 states and with access to over 20 T-listed, A-Rated bonding companies, we have the contacts, expertise, and top service to provide you with a hassle-free experience, all while offering competitive rates for your surety bond.