What’s Covered by an Auto Dealer Bond

Before they are able to be licensed in most states, auto dealers must file a surety bond called an auto dealer bond with the state’s Department of Motor Vehicles (DMV). However, what the auto dealer bond covers and how to get such a bond can be confusing.

Why Do I Need An Auto Dealer Bond?

Auto dealer bonds protect customers, offering them an avenue for financial recourse in case of unethical actions caused by auto dealers. If the state or a customer does make a successful claim against an auto dealer bond, the surety will pay, and the dealer will be responsible to pay for that cost. For example, if fraud is committed or a car is sold with bad tags, that dealer may be facing a claim.


Although auto dealer bond protects the public, it benefits you and your dealership, too—but maybe not in the way you think. For example, an auto dealer bond doesn’t protect you from theft by employees. However, an auto dealer bond does prove to potential customers that you follow the law and behave ethically.

How Much do Auto Dealer Bonds Cost?

The exact price of your auto dealer bond will vary based on the required amount of the bond, your credit score, and your application and financial credentials. Things like tax liens and unpaid collections on your credit report will make it a bit harder to get a low premium. In general, auto dealers with stronger credit pay premiums of 1 to 5 percent of the bond amount. Those with credit challenges may pay 10 to 20 percent.

What’s Covered by Auto Dealer Bonds?

Auto dealer bonds are not insurance, but instead, offer recourse for consumers with work and performance claims. State and local agencies can also make claims against bonds to collect penalties, costs, or fines owed by dealers who fail to adhere to the terms of the bond.


Under the terms of the bond’s terms, you can be held responsible for any of your actions, depending on industry regulations and the legal language on the bond form. For example, auto dealer bonds specifically prohibit dealers from using unethical strategies to sell, misrepresenting merchandise, failing to pay required taxes and other fees to the state, and failing to provide valid title paperwork.


Both the state and customers can file a claim against the bond and your business. Claims can arise not only from deliberate bad acts and violations, but also potentially from simple errors and customer misunderstandings. Therefore, to help prevent claims, it’s smart to try to amicably work out any customer disputes.


The reasons for filing auto dealer bond claims that are most common include:


  • Financial fraud
  • Fraudulent representation of motor vehicles’ state during a sale
  • Not furnishing motor vehicle titles
  • Not meeting warranty obligations
  • Not paying for a trade-in motor vehicle
  • Not paying for a vehicle
  • Not paying lenders
  • Not paying sales taxes or fees to the state
  • Not reporting a sale
  • Providing a check returned for insufficient funds
  • Selling stolen motor vehicles

The Bottom Line with Auto Dealer Bonds

Remember, your best defense against bond claims is operating your business ethically and following the rules of the auto dealer bond. Doing so saves you money, and it also sets you apart from dealers who save expenses by selling poor quality products or are misleading their customers. For help getting your auto dealer bond, reach out to the professional, experienced surety bond staff at Viking Bond Services.