What Is A Dealer Surety Bond?

CA used car dealer surety bond

A dealer surety bond is a requirement in order to be a vehicle dealer in the state of California. Therefore, you should be familiar with the general aspects of a bond. Here, we will explain what a surety bond is, why you need it, how much it costs and where you can get your bond. 

What is a surety bond?

A dealer surety bond is a promise to be liable for the debt, default or failure of another party. In a surety bond situation, there are three parties involved. 

  1. Principal – In the case of a car dealership, the principal will be your business. 
  1. Obligee – The obligee is the government agency that requires the car dealership to purchase the surety bond. 
  1. Surety – The surety is the insurance agency that is liable for the claims up to the amount on the bond. 

Who can file a claim under the dealer bond?

There are a number of parties who can file a claim under a dealer bond. Here are the most common parties who can make claims made on a surety bond. 

  • A consumer who purchases a vehicle from a dealer
  • Someone who sells a vehicle to a dealer 
  • A lender who provides consumer financing to a dealer
  • A creditors who provides financing to a dealership’s inventory
  • Any state regulator who issues the dealership’s license

What are the most common reasons that a third party can file a claim? 

Here’s a look at some of the most common claims made on a surety bond: 

  • MIsrepresentation of a vehicle’s condition at the time of purchase (For example: Manipulation of the vehicle’s odometer). 
  • Failure to deliver a valid title certificate after a vehicle purchase
  • Failure to pay the required vehicle sales tax to a state government 
  • Selling of a stolen vehicle 
  • Failure to report the sale of a vehicle.  

How does the claims process work? 

After a claim is made, the surety company will give the principal the opportunity to satisfy the claim. If the principal cannot satisfy the claim, then the surety will satisfy the claim. Afterward, the surety will pursue payment from the principal. 

How much does a surety bond cost for a California car dealer?

The amount of a surety bond can vary according to several factors. Here are the following factors that are considered:

  1. Bond amount
  2. Credit history
  3. History of losses 

What are the terms for a California motor vehicle dealer bond?

Dealers who are selling new and used vehicles (more than 25 vehicles per year sold) must get a $50,000 auto dealer bond. Dealers who are selling used vehicles (less than 25 vehicles per year) are required to get a $10,000 bond. 

Where can I get a surety bond?

While there are a number of places where you can purchase a surety bond for your vehicle dealership requirements, we recommend the following brokers: 

  • Bond 911 (for CA wholesale $10k dealer bonds)
  • Bond 911 (for CA Retail $50k dealer bonds)

Knowing the basics of surety bonds

A surety bond is not just a requirement for your vehicle dealership business, it also allows many different parties to make a claim in case of loss. Be sure to get multiple estimates before you decide on the surety bond that is right for your dealership.