4 Reasons Why Iowa Auto Dealer Bonds are Useful

Iowa auto dealer bonds aren’t just useful; they’re also mandatory. Until you have one, it’s illegal for you to sell vehicles in the state. Fortunately, obtaining an Iowa motor vehicle bond is an opportunity as well as an obligation. Once you’re bonded it benefits yourself, your business, and all the customers you serve. Start by learning what kind of bond you need, then discover why it’s such an asset.

An Overview of Iowa Motor Vehicle Dealer Bonds

The Iowa Department of Transportation (IDoT) requires all motor vehicle dealers to obtain a surety bond in the amount of $75,000. Without this bond, they cannot be licensed. Bonds are intended to protect the public when auto dealers engage in unscrupulous business practices like rolling back an odometer. If state law is broken, the affected consumer can file a claim seeking compensation. When an investigation proves the claim is valid, the surety company that issued the bond guarantees payment up to the $75,000 limit. Afterwards, the surety company collects the claim amount from the dealer – the party with the ultimate financial responsibility.


To understand how this scenario works, it helps to know the different parties involved with auto dealer bonds:

  • The obligee creates the bond requirement – The Iowa Department of Transportation
  • The principal is required to get the bond – You and any business partners.
  • The surety issues the bond and pays any valid claims – A qualified company like Viking Bond Service.


When you, the principal, purchase a bond from the surety, the cost is only a small percentage of the bond amount. How much you pay is based on your credit risk, but applicants with poor credit are still qualified. Once you pay the premiums and provide proof to the obligee, the bond requirement is satisfied until the bond is up for renewal – typically after one year.

How do Iowa Auto Dealer Bonds Help Businesses?

If you’re like most business people, you would rather not have to pay for a bond. That’s totally understandable, but it’s important to understand why a bond is a licensing requirement that actually helps your business become as successful as possible. Here are four examples:


Bonds Build Customer Trust


A survey from 2016 showed that 3 in 5 Americans feel like they’ve been taken advantage of at the car dealership. Whether or not they actually have been manipulated is irrelevant. This stat just confirms something that has been true for as long as the auto industry itself – people mistrust motor vehicle dealers.


Having a bond from a qualified surety helps establish your business as an honest one because it ensures that customers can seek compensation if something goes awry. Vehicles are a significant investment, but bonds make it seem like a safe one. They also create a powerful incentive for dealers to act honestly since you, the principal, have final financial responsibility for any claims paid. Bonds encourage dealers to do everything above board, which is precisely the kind of trustworthy behavior today’s car buyers are looking for.


Bonds Help Regulate the Auto Industry


You can get a bond with poor credit, but that doesn’t mean everyone is automatically approved. Some applicants are denied because of extreme financial risk or because they can’t pay the bond premiums. As a result, they can’t get a motor vehicle dealer license either, which is good for every licensed dealer in Iowa.


Auto dealer bonds create a barrier to entry that keeps unscrupulous dealers out – the ones with the most incentive to break state laws. Since those dealers are not out there selling lemons or lying on vehicle titles, car buyers have less reason to be suspicious of dealers overall. Limiting vehicle sales to only qualified dealers also caps the amount of competition you’re up against. Basically, if it were not for the bond requirement, there would be many more people selling vehicles in Iowa and preying on consumers. Upstanding dealers and the public at large both benefit by having high standards for participation in the auto industry.


Bonds Are Great Marketing Material


As we have shown, bonds are a great way to build customer trust and to establish the bona fides of your businesses. For those same reasons, they are also great material for marketing messages. Highlighting that you have an active Iowa motor vehicle dealer bond tells any potential customer you have the backing of IDoT and a surety company like Viking Bond Service.


Most people don’t know what an auto dealer bond is or exactly how it protects them. Instead of trying to explain things in-depth, simply emphasize that bonds keep dealers honest and protect car buyers in the process. You could make this the subject of an entire advertisement, or you could quickly mention that you have a bond and remain in good standing with IDoT.


Bonds Improve Long-Term Budgeting


Bond premiums generally cost around 3% of the bond total — but the percentage can go up or down based on your credit risk — meaning your premium will be approximately $2,250. You will need to pay this upfront to activate the bond and then pay again annually to renew the bond.


Bonds are not the biggest business expense, but they’re still one you need to plan and budget for. Knowing the bond renewal bill is coming encourages dealers to save diligently and manage their finances carefully, which are sound business practices to being with. It’s also worth pointing out that your credit risk is reevaluated whenever you renew the bond, so your premiums can go down if your credit score improves – just one more example of how bonds incentivize smart money management.


Getting an Iowa auto dealer bond is more useful than you expect, and probably easier too. Viking Bond Service is committed to helping every applicant from Iowa navigate the bond process and find the most competitive premiums available. If you want more information, peruse our guide all about surety bonds.