Motor Vehicle Dealer Bonds

A motor vehicle dealer bond, also called an auto dealer bond, is a surety bond that your state requires before it issues or renews a dealer license. The bond guarantees that you will follow your state's dealer laws, such as transferring titles properly and dealing honestly with customers. If you don't, customers and others who are harmed can make a claim against the bond. Bond amounts and rules are set by each state and can differ by the type of vehicles you sell.

How a dealer bond works

The bond is an agreement among three parties: you, the dealer (principal); the state agency that licenses dealers (obligee); and the surety that issues it. For example, a customer who never receives the title to a car you sold may be able to make a claim against your bond. Other claims can involve misrepresenting a vehicle or failing to pay off the loan on a trade-in. If the claim is valid, the surety pays up to the bond amount.

Bond amount and your premium

The bond amount is set by your state and is the most the surety will pay on claims, not the price you pay. Amounts vary widely. California requires $50,000 for most new and used car dealers but $10,000 for motorcycle and ATV dealers. Texas requires $50,000 for most dealers, and Florida requires $25,000. Your premium depends on the surety's underwriting, including your credit and business finances. Request a quote rather than relying on a fixed price.

Dealer types that may need a bond

Each state decides which dealer licenses require a bond and how much. Depending on your state, a bond may be required for:

State rules to watch

Bond requirements change, so check your state's current rules before you apply or renew. Texas, for example, raised its dealer bond from $25,000 to $50,000 in 2021, exempts franchised dealers from the bond and requires dealers to post a notice of the bond and how to make a claim next to their license. Other states set different amounts for different dealer types or locations.

Find bonds by state

What happens when a claim is filed

The agency may review the complaint against your dealer license while the surety separately investigates the claim against your bond. You will usually have a chance to resolve it first. If the claim is not valid, it is denied. If it is valid, the surety pays the claimant and you must repay the surety. Unlike general liability insurance, a bond does not take the cost off your hands.

Keeping your bond in force

Dealer bonds usually renew with your dealer license, and you pay a new premium at each renewal. Letting your bond lapse can lead to suspension or loss of your dealer license, so renew on time. If your business name, ownership, location or required bond amount changes, your bond may need to be updated too.

Not sure which bond you need?

WWIS is based in Litchfield Park, Arizona, is licensed in all 50 states and has helped dealers with motor vehicle dealer bonds for more than two decades. Call 888-518-8011 or email [email protected] and we'll help you find the right bond for your dealer license.