Auto dealer bonds (also known as car dealer bonds, DMV bonds, or motor vehicle dealer bonds) are legally binding agreements between three parties: car dealerships, the state government agency responsible for regulating car dealers (typically the DMV), and a surety company.
The state agency is the Obligee and establishes the obligations that the Principal (the auto dealer) must follow. The surety (also called bonding company) issues the bond guaranteeing the performance of the dealer.
Auto dealer bonds are required in most states to be eligible to obtain an auto dealer license to operate as a new or used car dealer, motorcycle and ATV dealer, or new car franchise dealer. The state agency that requires dealers to post a surety bond is usually the Department of Motor Vehicles (DMV) or Department of Transportation (DOT).
Auto dealer surety bonds provide protection for customers, creditors, and governments. When the surety company issues the bond, they are providing the government a guarantee that the customers, vendors, and employees of a licensed dealer will receive payment for financial losses resulting from a violation of the statutes and regulations required by the dealer license.
If the dealership fails to meet the obligations set out by the state agency, the surety will pay out damages up to the bond amount. The dealer is liable for the losses and is legally required to reimburse the surety company for any damages paid under the bond.
Auto dealer surety bond costs vary from state to state depending on the total bond amount and the premium rate. The state agency sets the required bond amount and the surety company determines your premium rate, which is the percentage of the total bond amount you pay as the premium. Many states will increase the required bond amount based on the number of vehicles a dealership sells during the year.
Premium rates for auto dealer bonds tend to range between 1% and 10%. During the application process, the surety company evaluates your credit score, financial statements, industry experience, and licensing history. Applicants with good credit generally receive the lowest rates, however, bad credit will not prevent you from securing an auto dealer surety bond. EZSurety still offers competitive rates to individuals with low credit scores or other financial issues.
Below are the lowest premiums EZ Surety has issued for auto dealer bonds in popular states.