Dealer Bond
Dealer Bond/MVD Bond
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What Is a Motor Vehicle Dealer Bond?
A motor vehicle dealer bond, also known as an MVD bond or auto dealer bond, is a type of surety bond required for many motor vehicle dealers as part of the licensing process.
The bond helps protect consumers and the public by guaranteeing that the dealer will follow applicable laws, regulations, and licensing requirements.
A motor vehicle dealer bond involves three parties:
- Principal: The motor vehicle dealer that purchases the bond.
- Obligee: The government agency or other authority that requires the bond.
- Surety: The company that issues the bond and guarantees the dealer's obligations to the obligee.
Motor vehicle dealer bonds may also be called auto dealer bonds, car dealer bonds, used car dealer bonds, dealer bonds, DMV bonds, dealer license bonds, or motor vehicle bonds.
How Does a Motor Vehicle Dealer Bond Work?
A motor vehicle dealer bond is intended to protect customers and the public rather than the dealer purchasing the bond.
Important parts of an MVD bond include:
- Bond amount: The maximum amount available under the bond for covered claims. Required bond amounts vary by state and dealer type.
- Bond premium: The amount the dealer pays to purchase the bond. Premiums typically range from 1% to 10% of the bond amount.
- Bond term: The period during which the bond remains active. Many dealer bonds have one-year terms and must be renewed.
A claim may be filed against the bond if a dealer violates covered licensing requirements or causes a customer financial loss through prohibited business practices.
Examples may include:
- Misrepresenting the condition of a vehicle
- Falsifying or omitting information about a vehicle's repair or accident history
- Issuing a fraudulent certificate of title
- Failing to pay required title or registration fees
- Selling a vehicle without properly resolving prior ownership interests or liens
- Failing to follow applicable tax requirements
- Selling a stolen vehicle
- Failing to fulfill certain warranty obligations
- Failing to properly report the sale of a vehicle
What Happens When a Claim Is Filed?
When someone files a claim against a motor vehicle dealer bond, the surety reviews the claim and may request supporting documents such as contracts, receipts, and correspondence between the dealer and customer.
If the claim is determined to be valid, the surety may compensate the claimant for covered losses up to the applicable bond amount.
Unlike a traditional insurance policy, a surety bond does not generally transfer the dealer's financial responsibility to the surety. If the surety pays a valid claim, the dealer may be required to reimburse the surety for the amount paid.
How Much Does a Motor Vehicle Dealer Bond Cost?
Motor vehicle dealer bond premiums typically range from 1% to 10% of the required bond amount.
The actual cost can depend on factors such as:
- The required bond amount
- The state where the dealer operates
- The type of dealership
- The dealer's credit
- Business experience
- Financial history
- Annual sales volume
Dealers with stronger credit, more business experience, and stronger financials may qualify for lower premiums.
Motor Vehicle Dealer Bonds by State
Motor vehicle dealer bond amounts and terms vary by state and, in some cases, by dealer type or sales volume. Requirements are subject to change, so dealers should confirm the current requirement that applies to their license before purchasing a bond.
| State | Bond Amount | Term |
|---|---|---|
| Alabama | $50,000 | 1 year |
| Alaska | $100,000 | 1 year |
| Arizona | $100,000 | 1 year |
| Arkansas | $25,000 | 1 year |
| California | $50,000 | 1 year |
| Colorado | $50,000 | 1 year |
| Connecticut | $50,000 | 1 year |
| DC | $25,000 | 1 year |
| Florida | $25,000 | 1 year; expires 4/30 |
| Georgia | $35,000 | 2 years |
| Hawaii | $10,000–$200,000 | 1 year |
| Idaho | $20,000–$40,000 | 1 year |
| Illinois | $50,000 | 1 year |
| Indiana | $25,000 | 1 year |
| Iowa | $75,000 | 1 year |
| Kansas | $30,000 | 1 year |
| Kentucky | Up to $100,000 | 1 year |
| Louisiana | $50,000 | 1 year |
| Maine | $25,000–$100,000 | 1 year |
| Maryland | $5,000–$300,000 | 1 year |
| Massachusetts | $25,000 | 1 year |
| Michigan | $10,000 | 1 year |
| Minnesota | $50,000 | 1 year |
| Mississippi | $25,000 | 1 year |
| Missouri | $50,000 | 1 year |
| Montana | $50,000 | 1 year |
| Nebraska | $5,000–$300,000 | 1 year |
| Nevada | $100,000 | 1 year |
| New Hampshire | $25,000 | 1 year |
| New Jersey | $10,000 | 1 year |
| New Mexico | $50,000 | 1 year |
| New York | $20,000–$100,000 | 1 year |
| North Carolina | Starting at $50,000 | 1 year |
| North Dakota | $25,000 | 1 year |
| Ohio | $25,000 | 1 year |
| Oklahoma | $25,000 | 1 year |
| Oregon | $50,000 | 3 years |
| Pennsylvania | $20,000 | 1 year |
| Rhode Island | $50,000 | 1 year |
| South Carolina | $30,000 | 1 year |
| South Dakota | $25,000 | 1 year |
| Tennessee | $50,000 | 2 years |
| Texas | $50,000 | 2 years |
| Utah | $75,000 | 1 year |
| Vermont | $35,000 | 1 year |
| Virginia | $50,000 | 1 year |
| Washington | $30,000 | 1 year |
| West Virginia | $25,000 | 1 year |
| Wisconsin | $50,000 | 1 year |
| Wyoming | $25,000 | 1 year |
Motor Vehicle Dealer Bond Requirements
Underwriting requirements can vary by surety. Depending on the bond and applicant, the surety may consider factors such as credit, time in business, and financial history.
Some applications may require additional financial information, including tax returns, cash flow information, or profit and loss statements.
Dealers may also be required to sign an indemnity agreement. An indemnity agreement establishes the dealer's obligation to reimburse the surety for certain costs or claim payments made under the bond.
How to Get a Motor Vehicle Dealer Bond
Motor vehicle dealers can obtain bonds through insurance agencies and specialized surety bond providers.
The general process includes:
- Submit an application with your personal and business information.
- Receive a premium quote based on the bond requirement and your qualifications.
- Purchase the bond and receive the bond documentation.
After the bond is issued, it generally must be filed with the government agency or licensing authority that requires it.
Apply for a Motor Vehicle Dealer Bond
Worldwide Insurance Specialists can help motor vehicle dealers obtain the surety bonds required for licensing.
Complete our surety bond application to request a quote.
Motor Vehicle Dealer Bond FAQs
Why do I need a surety bond to sell vehicles?
Motor vehicle dealer bonds are intended to protect consumers when dealers fail to comply with applicable licensing laws or regulations. If a customer suffers a covered loss because of a dealer's actions, the customer may be able to file a claim against the bond.
How much does an auto dealer bond cost?
The cost depends on the required bond amount and the premium rate offered by the surety. Other factors may include the type of dealership, credit, business experience, financial history, and annual sales volume.
Premiums commonly range from 1% to 10% of the required bond amount.
Can I get a motor vehicle dealer bond with bad credit?
Dealers with lower credit may still be able to obtain a motor vehicle dealer bond. Worldwide Insurance Specialists works with business owners across a range of credit profiles to help them meet their bonding requirements.
What type of dealer bond do I need?
Dealer bond requirements vary by state and license type. Visit our bonds by state page to learn more about requirements in your state.
You can also read our surety bond guide for more information about how surety bonds work.
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If you or your business needs help in obtaining a surety bond or commercial insurance give us a call!