Iowa Auto Dealer Bond

An Iowa auto dealer bond, formally called a Motor Vehicle Dealer and/or Towable Recreational Vehicle Dealer Bond, is a surety bond required by the Iowa Department of Transportation before your dealer license can be issued.

It is a financial guarantee that your dealership will operate in compliance with Iowa law and deal honestly with customers. If you fail to do so, a harmed customer can make a claim against your bond to recover their losses.

Unlike insurance, which protects you, a surety bond primarily protects your customers and the state. If a valid claim is paid out, you are responsible for reimbursing the surety company.

Every surety bond is a contract between 3 parties:

• The Obligee: Iowa Department of Transportation The state authority that requires the bond as a condition of licensing. They set the bond amount and terms.
• The Principal: You, the dealer You purchase the bond and are bound by its terms. If a valid claim is paid, you must reimburse the surety.
• The Surety: such as Lance Surety Bonds We underwrite the bond and guarantee payment to claimants up to the bond amount if you default on your obligations.

1. Submit Your Bond Application

You can apply for your bond online. Just enter some basic information about yourself and your business, and you should be able to submit your application within a matter of minutes. If you have any questions, we are more than happy to assist you.

2. Get a Quote

At Lance Surety Bonds, we want to provide you with the best premium rate possible. For most applicants with a strong credit history, a quote is ready within minutes. More complex applications may take up to 24 hours.

3. Purchase Your Bond

Once you receive your quote, you can pay the bond premium and you’re officially bonded in Iowa. You’ll receive an email copy of the bond, and you can request a paper copy if necessary.

4. File your bond with the Iowa DOT 

Submit your bond as part of your dealer license application to the Iowa Department of Transportation.

Filing address:

Iowa Department of Transportation
Customer Services Bureau
P.O. Box 9278
Des Moines, IA 50306-9278

Email: [email protected]

Phone: 515-237-3156 

The Iowa DOT requires a $75,000 surety bond as part of the motor vehicle dealer license documentation. A dealer license is required if you are engaged in the business of acquiring, selling, exchanging, holding, offering, displaying, brokering, auctioning, or accepting consignment motor vehicles for sale to the public.

• Motor vehicle dealers - New, used, franchise, auction, and restricted motor vehicle dealers must file a $75,000 bond with the Iowa DOT. Wholesale used vehicle dealers are licensed as motor vehicle dealers and are also required to file the bond.
• Towable recreational vehicle dealers - Iowa requires a $75,000 towable recreational vehicle dealer bond unless the applicant already has a motor vehicle dealer bond on file with the Iowa DOT under the same name and at the same principal place of business. The exemption applies in both directions.
• Restricted dealers - Restricted dealer licenses apply to specific activities such as lease-option sales, fleet vehicle sales, auction-only sales, sales of repossessed or lien-acquired vehicles, and insurers disposing of vehicles acquired through damage or theft-loss settlements. Restricted dealers must still file the $75,000 bond and must maintain a business location in Iowa, though they are not required to meet the full "place of business" standard and cannot obtain dealer plates or extension lot licenses. 
• Out-of-state used motorcycle rally sellers - A dealer seeking a temporary used motorcycle rally permit must furnish a $75,000 motor vehicle dealer surety bond to the department.
• Manufacturers, distributors, and new vehicle wholesalers - These operate under a separate license class and are not covered by the motor vehicle dealer bond requirement.
• Banks and credit unions - Banks and credit unions are exempt from the dealer license requirement when offering motor vehicles for sale. Limited-use dealer plates may be obtained if plates are needed for the demonstration and delivery of repossessed vehicles.

The bond protects consumers from financial loss caused by dealer fraud, negligence, or failure to follow Iowa dealer laws. Under Iowa Code section 322.4, the bond can indemnify a motor vehicle purchaser for losses caused by a dealer’s failure to comply with applicable Iowa laws, including title and odometer requirements 

 A claim can be filed for any of the following violations:

1. Failing to furnish a proper and valid certificate of title
2. Failing to comply with Iowa odometer requirements
3. Misrepresenting a vehicle's condition, accident history, or mileage
4. Retaining customer deposits without delivering the vehicle
5. Any other breach of Iowa dealer law covered by the bond 

The maximum payout per bond is the bond's penal sum: $75,000 for the Iowa motor vehicle dealer bond. After any payout, you, as the principal, are liable to reimburse the surety.

How the Claims Process Works?

1. Consumer or claimant contacts the surety company directly to file a claim
2. The surety investigates the claim to determine its validity
3. If the claim is valid, the surety pays the claimant up to the bond's penal sum ($75,000)
4. The dealer (principal) is then required to reimburse the surety for any amounts paid out
5. Claims on your record will significantly increase your bond premium at renewal

Two items renew on separate schedules, so it’s important to keep them distinct.

Your dealer license is biennial. Under Iowa Code section 322.7, a motor vehicle dealer license is valid for two years and expires on December 31 of even-numbered years, regardless of when it was issued. If you are first licensed early in an even-numbered year, your initial license will still expire that December. The statute gives you the month of expiration and the month after to renew; the Iowa DOT advises that dealer privileges expire unless the renewal has been received by the last day of the month the license expires, so do not plan around the grace period. Miss the window entirely and you must file a new license application and pay the fee again.

Used motor vehicle dealers must also complete a 5-hour continuing education course to renew. Failure to complete it will prevent your license from being renewed.

Your bond is continuous, but the premium is annual. The Iowa dealer bond form remains in force until it is cancelled rather than expiring on a fixed date. You pay a premium each year to keep it active. Lance Surety will contact you well in advance of each premium due date to help prevent any lapse in coverage, and at that point the surety company will review your credit. Maintaining a strong credit profile can help keep your premium costs low.

Iowa rules require the bond to provide at least 30 days' notice to the Iowa DOT before cancellation. If your bond is cancelled, the DOT will notify you that your dealer license is revoked effective the same date unless a reinstated or replacement bond is filed.

Getting an Iowa auto dealer license is a detailed process. The Iowa Department of Transportation requires applicants to submit licensing documents such as the dealer application, fees, $75,000 surety bond, zoning letter, franchise documents for new vehicle dealers, and an on-site inspection.

Used motor vehicle dealer applicants must also complete an 8-hour Auto Dealer Pre-Licensing Education Class unless an exception applies. Iowa also requires financial liability coverage of at least $100,000 for bodily injury or death of one person, $300,000 for bodily injury or death of two or more persons, and $50,000 for property damage.

For more information on how to get the license, check our guide: Iowa auto dealer license

How long does it take to get an Iowa dealer bond?

For most applicants, bonds are issued the same day, often within minutes of completing the application. Your bond is delivered digitally by email. If you need a paper original, we'll mail it to you.

What is the difference between the bond amount and the bond premium?

The bond amount, also called the penal sum, is the maximum protection offered to consumers: $75,000 for Iowa motor vehicle dealer bonds. This is not what you pay. The bond premium is the annual cost you pay to purchase the bond, which is a percentage of the bond amount. For Iowa, that usually ranges from $750 to $7,500, depending on credit and underwriting factors.

How many cars can I sell in Iowa without a dealer license?

Iowa presumes that anyone selling more than six motor vehicles in a twelve-month period is engaged in the business of selling vehicles and must be licensed. Once you cross that threshold, you need a dealer license and the $75,000 surety bond that goes with it.

What happens if my bond lapses?

If your bond lapses or is cancelled without replacement, you are no longer in compliance with Iowa dealer licensing requirements. The Iowa DOT will notify you that your dealer license is revoked effective the bond cancellation date unless the bond is reinstated or a new bond is filed.

Can my bond be cancelled?

Yes, a surety bond can be cancelled either by you or by the surety company. Iowa rules require at least 30 days' notice to the Iowa DOT before cancellation. Once your bond is cancelled, your dealer license can be revoked unless a new or reinstated bond is filed.

Do I need a bond for every salesperson I employ?

No. Iowa's dealer bond requirement applies to the dealer license, not to each individual salesperson. This is different from states that require separate salesperson bonds.

Do I need a separate bond if I sell both motor vehicles and towable recreational vehicles?

You will need both licenses, but usually only one bond. Iowa requires a separate towable recreational vehicle dealer license even if you already hold a motor vehicle dealer license. The bond, however, is not duplicated: a second $75,000 bond is not required if you already have the other qualifying dealer bond on file with the Iowa DOT under the same name and at the same principal place of business.