Auto dealer surety bonds (also called motor vehicle dealer bonds) are mandated by the Texas Department of Motor Vehicles (DMV) as part of the licensing requirements for dealerships to conduct business in the state. The bonds are a three-party agreement between the dealer (the Principal), the underwriter (surety), and the state of Texas (Obligee).
The total bond amount, as set by the Obligee, is $25,000. The surety company determines your premium rate, which is the percentage of the total bond amount you pay as the premium. Premium rates for Texas auto dealer bonds typically cost between 1% and 3% of the total bond amount.
During the application process, the surety company evaluates your personal credit, financial statements, industry experience, and licensing history. Applicants with good credit generally receive the lowest rates, however, bad credit will not prevent you from securing a Texas auto dealer bond. EZSurety still offers competitive rates to individuals with low credit scores or other financial issues.
EZ Surety has issued Texas motor vehicle dealer bonds for premiums as low as $350.
Texas auto dealer bonds provide protection for customers, creditors, and the state government. When a Texas motor vehicle dealer posts a surety bond, they provide a guarantee to the Texas DMV that they will conduct business in compliance with the conditions listed in the Texas Transportation Code.
If the auto dealer fails to comply with the Transportation Code, the surety company will pay out financial losses to damaged parties up to the full bond amount. The auto dealer is liable to reimburse the surety for any damages paid under the bond.
Auto dealers that buy, sell, lease, display, or deal three or more motor vehicles a year in Texas must post a motor vehicle dealer bond to be eligible for a Texas Dealer license.
After posting the surety bond, each dealer must obtain a general distinguishing number (GDN) from the Motor Vehicle Division. GDN licenses, also called Independent Dealer Licenses are issued for different categories based on the type of vehicles being sold.
Independent Dealer Licenses allow a dealer to buy, sell, or exchange the particular type of vehicle for which it is issued. When you apply for a license, you must submit a separate application for each license type. The following independent dealers license require a surety bond:
Along with the $25,000 surety bond, dealers applying for an independent dealers license must provide the following information to complete the Texas Department of Motor Vehicles eLICENSING process:
Auto dealers must pay a $700 fee for each license category included in the application. Independent dealer licenses are valid for a two-year period and require a $400 fee for renewal. If a dealer fails to pay the renewal fee on time, a $200 late fee will apply if the license is renewed within 30 days of expiration. An additional $200 fee will be required if renewed more than 30 days after expiration.
Franchise Dealers License
This license is required for anyone wishing to sell new vehicles. Franchise dealers are also required to have a General Distinguishing number. With this license, dealers are able to buy, sell, service, and exchange new motor vehicles, motorcycles, or towable RVs.
Franchise dealer licenses cover either a specific person or business, but an additional license is required for each showroom. Dealers may use the same GDN for multiple showrooms, as long as they are in the same city limits. Franchise dealer licenses do not require a surety bond.
For more information on Franchise Licenses, read here.
You’ll know if you need a surety bond because some entity will have required you to obtain one. They must also inform you of which specific bond type you’ll need. There are thousands of bonds across the country, all of which vary by state and industry.
Visit EZSuretyBonds.com to browse hundreds of bonds by state, type, or industry.