Have you heard others mention "surety bonds" but don't know what they're talking about? These types of auto dealer bonds are often necessary when you're selling cars in the state of Arizona. Understanding what a car dealer bond is and how they work will help you make smart choices for your business.
What Is an Arizona Auto Dealer Bond?
To put it simply, this type of surety bond is a guarantee that others can be financially compensated for mistakes you make. While being different than business insurance, it can help cover accidents.
Auto dealer bonds are a special type of surety bond meant specifically for those who buy and sell motor vehicles. Dealer surety bonds are a three-way agreement between you, the Arizona Department of Transportation, and the surety company that sells the bond. You pay the surety bond a set amount of money, and in return, they agree to pay for damages that might occur while you're operating your business.
Claims can be made on auto dealer bonds for a variety of reasons. Surety bonds are key in ensuring your business will deliver the agreed upon products or services to your customers. Being bonded is not only a legal requirement but also part of being recognized as a reputable business by assuring your clients will be recompensated should you engage in certain illicit or unethical behaviors.
How Much Does an Arizona Auto Dealer Bond Cost?
The exact pricing for a bond varies quite a bit. Overall, it is a percentage of the total bond account. However, a bond company usually does not give the same pricing to every person. Instead, their underwriting team will provide a personalized bond quote depending on your qualifications. Usually, there are no fees outside of the license bond premium. Most reputable companies won't charge car dealers an application fee, background check fee, or other add-on costs.
Though you can't know what your premium will be until you talk to a bond company, you can get a rough idea of your auto dealer bond costs for your auto dealer license. If you're a new or used motor vehicle dealer looking for a standard bond of $100,000, prices typically start around $1,000. For wholesale dealers who need a bond of roughly $25,000, prices start at about $250. And if you're an automotive recycler looking for a $20,000 bond, the starting price will be roughly $200.
There are several factors that go into deciding your bond license fee. The surety company may consider the following things when they are estimating a quote for your bond premium:
- Whether you have good credit or bad credit
- The value of your business
- How long you have been running an auto dealer
- The sort of motor vehicles you sell
- Whether you have any liquid assets
- The license type you have
- The total bond amount you're requesting
Generally, you can get a lower bond premium if you seem like a reliable Arizona auto dealer with a stable financial background. Surety bond companies are more likely to charge higher rates if you seem like a high risk. Want more details on what affects your bond cost? Explore our surety bond cost guide for more information and get your free quote using our surety bond cost calculator.
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How Can I Get an Arizona Auto Dealer Bond?
When you are ready to get an Arizona motor vehicle dealer bond, the process is very simple. All you need to do is follow this simple list:
1. Carefully read the Arizona bond requirements to make sure you are applying for a bond that will satisfy your license application. This includes details like having a power of attorney attached to the bond and having enough coverage for your dealership type.
2. Find reputable Arizona surety bond companies and ask them for a free quote. Provide all necessary information needed to get an accurate estimate.
3. Complete our online application and we will provide you a bespoke quote that fits your needs. Bryant Surety Bonds has the know-how, experience and high service standards required to offer you the right surety bond solution.
4. Keep an eye out for any communication from the company. They may ask for verification in the form of financial documents or other records.
5. Once you meet each bond requirement, finalize your bond by signing all necessary paperwork and paying your premiums.
6. Make sure to get proof of your bond to show to the DMV. If you are near the DMV expiration date for your license or bond, make sure to alert them to the new bond as soon as possible.
Can I Get an Arizona Auto Dealer Bond With Bad Credit?
Since your personal credit has a huge impact on your bond, many people worry that bad credit will keep them from getting a bond. This actually is not true. Good bond companies will not prevent you from getting a bond just because of your credit. As long as you meet basic bond requirements, you can still get a bond.
This is especially true of license bond companies that offer special motor vehicle dealer surety bond deals. Some companies have a bad credit program that helps car dealers with financial difficulties to get bonded. Aside from bad credit, they might help you work around tax liens or bankruptcies.
However, your credit will usually affect your bond premium a little bit. Typically, a lower credit score will mean a higher premium. Surety bond companies ask car dealers with a lower credit score to pay more because bonding the dealership is a bigger risk. A higher premium helps to offset the chance of the car dealership doing anything that will require the bond company to pay for damages.
Who Should Get an Arizona Auto Dealer Bond?
Arizona auto dealer bonds are useful for a variety of situations. The state of Arizona will require just about anyone who sells cars professionally to have a bond. All sorts of car dealer types have to get a bond, including:
- New motor vehicle dealers
- Used motor vehicle dealers
- Public consignment auction dealers
- Broker wholesale auto auction dealers
- Wholesale motor vehicle dealers
- Automotive recyclers
Furthermore, the state only recognizes a person as an Arizona motor vehicle dealer if they sell seven or more motor vehicles during a continuous period of 12 months. This means you don't need a bond just for selling your used car to a buddy. You only need to worry about getting your dealer license and meeting licensing requirements like a surety bond when you are regularly selling cars for the purpose of profit.
Ultimately, a surety bond benefits you and protects your customers. In addition to being a license application requirement from the Arizona Department of Motor Vehicles, your bond gives you peace of mind and keeps unexpected financial issues from ruining your business.