Surety bonds are just one part of the general licensing requirements for dealers. Any car dealer involved in the business of selling used motor vehicles within the United States will need a car dealer bond. This will ensure that the business remains compliant with the laws that govern the DMV bond system. The process includes filing surety bonds with the DMV prior to obtaining the dealer's motor vehicle license. This guide covers the details of how to obtain a license, how much they cost, and other important issues.
Obtaining the dealer's license is just one part of the process. When dealing with bond claims, businesses have to recognize their own role in maintaining their paperwork in good standing. This includes various types of insurance coverage, including liability insurance and garage liability, for example. Surety bonds are just as essential for maintaining the compliance required of the car dealer business. Always keep your business information handy when applying for an auto dealer bond cost estimate; this includes your business phone number and expiration date.
What Is a Used Car Dealer Bond?
Car and motorcycle dealer surety bonds are a necessary part of the industry for dealers. They protect the public from any damage caused by an auto dealer. Car dealers must comply with a variety of local, state, and federal statutes. Regulations in this industry also require the dealer to ensure that consumers are protected by obtaining a surety bond in addition to other licenses and insurance products. If a customer is harmed through negligence or malpractice of the dealership, the surety bond provides the protection necessary to meet the ensuing legal obligations.
How Does a Used Car Dealer Bond Work?
Getting a bond quote is the first step in the process. However, it's also helpful to first learn how the used car dealer bonds actually work. The type of bond may vary based on the needs of the applicant. No matter what type of bond is used, the process is designed to allow the party that is wronged in some way to file a claim against the bond. Breaching the terms of the bond agreement will allow the claimant to recover compensation. Claimants might be individual consumers, government agencies, or financial institutions involved in the transaction.
Why Do I Need a Used Car Dealer Bond?
Selling used vehicles comes with a certain amount of liability. The type of bond you get could be a motor vehicle dealer or a used car dealer bond. Any dealership selling used vehicles will need a dealer's license, and the regular motor vehicle dealer bond is required for obtaining this license. In addition, each state sets its own procedures for licensing and bonding, so always contact your local DMV for details on the application process and supporting documents that are required.
The function of all surety bonds is to offer guarantees to the seller, customer, and any third-party financial entities. They can also provide protection for governmental agencies that are involved in the surety agreement. Any fraud committed by auto dealers is insured by the bond, so the parties involved will always have a way to recover any financial losses caused by unethical behavior, fraud, or neglect. The car dealer bond also works to increase the credibility of the dealership, which improves consumer confidence in the trustworthiness of the business.
Dealerships might elect to file any number of car dealer bond types:
- DMV bonds
- Motorcycle dealer bonds
- RV bonds
- Used car dealer bonds
- Wholesale car dealer bonds
Can I Get a Used Car Dealer Bond With Bad Credit?
There are more hoops to jump through for applicants with bad credit, tax liens, low credit scores, and bankruptcies. Applicants with bad credit will have to expect a higher premium on the used car dealer bond, so make sure to account for this possibility when budgeting. It's important to recognize that this cost is offset by the amount of risk that is mitigated by obtaining the bond.
There are ways to obtain a more favorable rate even if you have bad credit. For example, when you obtain a free bond quote from bonding companies, find out if they partner with the best surety company. You can often take advantage of competitive rates, which are typically between 5 and 10%. This is one method for a dealership with a bad personal credit score to get benefits from a surety bond. Start the process today, and obtain a free quote for an auto dealer surety bond from our company.
How Much Does It Cost to Become a Used Car Dealer?
The total cost of the surety bond will be determined by a few different variables. For example, the amount that is required for each dealer to post on the dealer bond will depend on your financial condition. In addition, there are significant differences in how the bond amount is calculated from one state to another. To illustrate how this works, consider the states of Texas and Florida, where it's necessary to post an amount of $25,000 on your surety bond as a used car dealer. However, this amount jumps up to $50,000 in the state of California. However, you can receive your used car dealer bond without paying this entire sum upfront.
Normally, only 1 to 3% of the total amount on the bond is required, and this amount is called the bond's premium. The normal amount to be charged on a bond premium can vary greatly from one state to another. For example, you might be expected to pay anywhere from $250 to $25,000. The actual amount of your premium will be determined by the actual amount required by the state for your bond type, the financial condition of the applicant, and your credit score. Other factors that can influence the total premium paid include the issue of financing, which might be an option that drives up the cost through interest rates on borrowed money.
- If your bond amount is $50,000 and your premium is 1%, you’ll pay $500 out-of-pocket.
- Low credit scores tend to raise the premium, which also increases the out-of-pocket costs.
- Surety providers can offer a free quote so that you can determine your premium and bond price.
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How to Obtain a Used Car Dealer Bond
Each state has the right to set its own internal rules about how the car dealer bond obligations are met. The obligee is the party applying for the bond. The issuing authorities provide a form that gives this information, so applicants will need to refer to the rules that apply to their own state. This is an important aspect of the process to understand because the used motor vehicle dealer's license is usually issued only after the applicant obtains the proper surety bonds for their car dealership business. You can get a quote today by contacting the Department of Motor Vehicles, or DMV, or the agency issuing the motor vehicle dealer surety bond.
The states each determine their own rules for obtaining a dealer license, and this often means getting a surety bond first. Contact the state agency that's responsible for issuing licenses to auto dealerships. The representative can inform you if your state requires a surety bond before you can apply for your dealer's license. This is also the most efficient way to confirm that you don't need a bond if you reside in a state that doesn't have this requirement in place. Confirm this status first before continuing the licensing procedures for your state.
If you are selling new cars, you can check out our auto dealer bond guide as well.
How to Renew a Used Car Dealer Bond
Renew your used car dealer bond by contacting the same agency where you applied for the motor vehicle dealer bond or by looking for a notification in the mail. Licensing renewal notices are usually sent out in the mail within a period of a few months before the deadline to renew goes into effect. Following these steps will ensure that you remain compliant the whole time. When your business license is on the line, you need to take action to ensure that your used or wholesale dealer license remains valid.
Review your state's bond requirements to see if your renewal date is scheduled to be annually or biannually. Each time the license gets renewed, the same procedure will be needed to complete your used car dealer bond renewal as well. Maintain your business's requirements for compliance by renewing the license at the regular intervals required by your state. Operating with an expired dealer license can backfire, so make sure to renew the motor vehicle dealer license well before the deadline. The notification might come by mail, and you might also receive an email or phone call to alert you that a renewal is necessary.
Claim Process of a Used Car Dealer Bond
Protect your business and your customers with a used car dealer surety bond. Any violation of your bond obligations may require you to face a claim, and the bond will enable the claimant to be compensated up to the full amount of the bond. This protects the business from going bankrupt in the event of a claim against your dealership. Avoiding claims is a high priority; once there are bond claims filed against you, it will become more difficult to qualify in the future.