Used car dealer bonds are an integral requirement for many businesses selling second-hand vehicles in the US. Here, we explore exactly what you need to apply for one and how Lance Surety Bonds can help you get the best deal.
Questions about Used Car Dealer Bonds
- What is a Used Car Dealer Bond?
- How Does a Car Bond work?
- Who Needs to Obtain a Used Car Dealer Bond?
- Types of Motor Vehicle Dealership and Which Bonds They Need
- How Much Does a Used Car Dealer Bond Cost?
- How much is a $50,000 Auto Dealer Bond?
- Can I Get a Used Car Dealer Bond with Bad Credit?
- How Do I Get My Used Car Dealer Bond?
- How do I get bonded?
- How Do I Renew My Used Car Dealer Bond?
- How are Bond Claims Handled for Used Car Dealers?
What is a Used Car Dealer Bond?
In many US states, obtaining a used car dealer bond is an essential licensing requirement for those who wish to obtain a used auto dealer license. When you apply for your license, your local state licensing authority will let you know whether you need a car bond, and if so, the type and value required.
The purpose of these bonds, as with any other surety bond, is to protect potential clients and the state from any potentially fraudulent activities which dealers might commit. This makes surety bonds useful forms of protection and signifiers of reliability.
How Does a Car Bond work?
In general terms, car bonds work in the same way that other surety bond types work.
They represent contractual agreements between three parties.
The first party is known as the principal, which is, in this case, the dealership. The second party is known as the obligee. The obligee is the state authority that grants licenses and requires bonds, and in this case is usually the Department of Motor Vehicles (DMV). The third party is known as the surety, which acts as the underwriter and guarantor of the surety bond and is usually a formal surety company or surety agency. These are sometimes also known as bonding companies.
The principal must obtain a bond of the type and value determined by the obligee. In order to do this, they will pay a portion of the full bond value, known as the bond premium, to a surety company. In exchange for payment of the premium, the surety company will guarantee that cash to the value of the bond, known as the penal sum, is available in the event of a claim being made against the principal.
In the event of such a claim being made and being found valid, the surety will use that cash to pay damages to any affected parties up to the value of the penal sum. In doing so, the surety acts as an immediate form of indemnity to provide financial protection to the dealership’s clients. It’s important to note however that surety bonds are technically different from insurance. If you are interested, we have a page which more closely examines the differences between surety bonds and insurance.
Who Needs to Obtain a Used Car Dealer Bond?
In many states, a used auto dealer surety bond is required of individuals that would like to sell used motor vehicles, and who are applying for a used car dealer business license.
Some states require the posting of specifically written used car dealer bonds, and in others, a general motor vehicle dealer surety bond is sufficient.
Given the variations between states, it is sensible to contact your local licensing body to establish the exact requirements for your dealership license.
Types of Motor Vehicle Dealership and Which Bonds They Need
Different state laws categorize motor vehicle dealerships in different ways, and the bond types and bond values required of dealers also vary across the country.
As such, it’s difficult to lay out a comprehensive explanation of what types of motor vehicle dealerships exist, and which bonds they require. However, some common types of dealerships and their frequently associated bond types are:
Franchise Dealerships: These are dealerships which prioritize the sale of new cars through a franchise agreement with a specific manufacturer, though they can occasionally be found to sell used vehicles as well. In Texas, these dealerships do not require auto dealer bonds at all.
Independent Used Vehicle Dealerships: These are independently run businesses which sell a variety of used cars, made by a variety of brands. In most states, these types of dealerships must take out some type of auto dealer bond, though the value of those bonds can vary.
Salvage Dealerships: These are dealerships which primarily sell the parts of defunct vehicles. These types of dealers are usually required to post specific automotive dismantler bonds.
How Much Does a Used Car Dealer Bond Cost?
Your Auto Dealer Bond cost can vary depending on a variety of factors, including the value of the bond you are required to post, which is known as the bond amount, and your credit history.
The value of the bond you are required to post is first determined by the state depending on the type of license you wish to obtain. A bonding company will then evaluate your credit history and use their findings to determine the rate that they will charge you. This rate is known as the surety bond cost, bond price, or bond premium, and is a percentage of the overall bond value.
How much is a $50,000 Auto Dealer Bond?
Applicants with the best credit, which is represented by a FICO score of 675 or above, will often be charged between 1% and 3% of the full bond amount. For a surety bond worth $50,000, this means paying between $500 and $1,500.
For applicants with average credit history, or a FICO score between 650 and 675, it is common to be charged between 3% and 5%. That means paying between $1,500 and $2,500 for a surety bond worth $50,000.
For a more accurate estimate based upon the type of bond you need, and your personal credit, you can apply for a free quote today.
Can I Get a Used Car Dealer Bond with Bad Credit?
It can, unfortunately, be difficult for some would-be car dealers to get a license with bad credit. However, at Lance Surety, we run a bad credit surety bonds program specifically to help applicants with a low credit score, tax liens, bankruptcies, or other financial difficulties.
As surety companies consider applicants with poor credit to be “higher risk”, these applicants are often charged higher rates than other applicants as a means of mitigating that risk. However, we have developed partnerships with numerous A-rated, T-listed surety companies, and have worked to access exclusive rates for applicants with bad credit. As such, it is common for us to offer applicants with a poor credit history rates between 5% and 10% of the overall bond value.
Lance Surety Bonds is committed to helping used car dealerships stay in business by providing them with the bonds they need, whatever their credit score is. If you want to take out an auto dealer bond, but are concerned about bad credit, begin your online application process today, and our experts will help you to find the best rates possible.
How Do I Get My Used Car Dealer Bond?
Starting your bonding process is simple. You must first apply online and submit the necessary documents that accompany your bond application. We’ll get back to you with your free bond quote in no time. If you are happy with your bond quote, we can quickly pass you along in order to get you formally bonded.
You can get more information about bonding on our how to get bonded page.
How do I get bonded?
How Do I Renew My Used Car Dealer Bond?
Depending on the state in which you are based, you’re likely to have to renew your used car dealer license annually or biannually. Every time you renew the license, you have to do the same for your used car dealer bond.
With Lance Surety Bonds, you will get a renewal notification a few months in advance of the expiration date. We will contact you via mail, fax and email and will follow up by phone if necessary. You’ll have enough time to complete the renewal, so that you stay in compliance and keep your license active.
How are Bond Claims Handled for Used Car Dealers?
Should you violate the obligations to which you are held by your surety bond, you may face a claim. This is to be avoided, as proven claims can cause serious harm to your dealership.
If a claim is found to be valid, the surety will pay damages to affected parties up to the value of the bond, after which you will be obligated to repay the surety.
Avoiding claims is a top priority for used car dealers in order to keep a strong and trustworthy business. Getting bonded after a claim is very difficult, so it is prudent to avoid claims in the first place.
If you haven’t found what you’re looking for or want to learn more about Used Car Dealer Bonds, then you are always welcome to contact us on 877.515.4146 Equally, you can reach out to us on our chatbot.
Additionally, feel free to check out the Lance Surety Blog for all the most important information and updates in the bonds industry.
Still Have Questions? Check Our FAQ Pages
What Our Clients Have To Say?
Kimberlee AblesQuick response times and turn around for issuing bonds. Great customer service and very knowledgeable. We have used Lance Surety multiple times and have never been disappointed. Highly recommend them and Collette!
Andrew PoincotLong story short, these guys cut through the B.S. and get the job done. Responsiveness, excellent! Communication, excellent! Respect for their industry partners, excellent! John, Collette, Ryan, you're all-stars! Thank you!
Margie MartinezWe decided for Lance Surety Bond's quote for 2 reasons; Price and Customer Service. Our Representative Ryan was just SUPERB!! [...] I highly recommend Lance Surety Bond for all your Bonding needs! I'll definitely come back for all of mine. :-) Thanks Ryan!