The Basics of Auto Dealer Bonds
In all 50 states, car dealerships are required to post an auto dealer bond — a type of commercial surety bond — in order to get fully licensed. Where insurance protects your business, bonds are designed to protect customers.
Essentially, a bond acts as a contract between the dealership, customers and a surety company. If the dealership breaks state laws or otherwise violates an agreement with a customer, that customer can file a claim against them. The surety company compensates the customer for losses, after which, the dealership is required to repay the surety company.
When applying for an auto dealer bond, the surety company will ask for your personal credit score, which is used to gauge your trustworthiness (much like when applying for a bank loan). With good credit, you can expect to pay anywhere from one to five percent of the bond amount.
With poor credit (a score of 650 or below), you can expect to pay from five to fifteen percent of the bond amount. However, you can lower your premiums over the years by actively taking steps to improve your credit score and financial responsibilities.
Are you thinking about opening a car dealership? Call your independent insurance agent to learn about auto dealer bond requirements, along with the commercial insurance you’ll need to protect your business investments.