Texas Auto Dealer Bond

A Texas auto dealer bond, formally called a Motor Vehicle Dealer's Surety Bond, is a surety bond required by the Texas Department of Motor Vehicles (TxDMV) before most independent GDN dealer licenses can be issued.

It is a financial guarantee that your dealership will follow Texas law, pay valid drafts and checks, and transfer good title to the vehicles you sell. If you fail to meet those obligations, a harmed customer may be able to recover losses through your bond.

Unlike insurance, which protects you, a surety bond primarily protects your customers and the state licensing process. 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: Texas Department of Motor Vehicles

TxDMV requires the bond as part of the GDN licensing process. The bond also protects

people who do business with the dealer and obtain a qualifying judgment.

• 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.

The cost of a Texas auto dealer bond starts at $500 per year. Bond premiums are typically between 1% and 3% of the $50,000 bond amount, so most applicants with strong credit can expect annual pricing between $500 and $1,500.

It is important to understand the difference between the bond amount and what you actually pay. The $50,000 is the maximum protection available under the bond. It is not your cost. What you pay is the bond premium, which is a small percentage of that amount.

Texas GDN dealer bonds must match the two-year license term. This usually means you pay for a two-year bond term instead of renewing the bond every year.

Your premium is quoted individually based on your credit score, business financials, dealership experience, and prior bond claims. Even applicants with poor credit can get bonded. A lower credit score usually means a higher premium, not an automatic denial.

Even applicants with poor credit can get bonded. A lower credit score means a higher premium, not a denial.

Here’s a breakdown of the bond requirements and the premium costs based on your credit score.

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 Texas. You’ll receive an email copy of the bond, and you can request a paper copy if necessary.

4. File your bond with the Auto Industry Division 

Submit your bond as part of your dealer license application through the Texas Department of Motor Vehicles eLICENSING system.

Department information:

Texas Department of Motor Vehicles
 Motor Vehicle Division
 P.O. Box 26487
 Austin, TX 78755

The Texas Department of Motor Vehicles requires most independent GDN applicants to post a $50,000 motor vehicle dealer surety bond before receiving a license.

• Independent motor vehicle dealers - Dealers who buy, sell, or exchange used cars, trucks, motor homes, and neighborhood vehicles must provide a $50,000 bond.
• Independent motorcycle dealers - Dealers who buy, sell, or exchange used motorcycles, motor scooters, or ATVs must provide a $50,000 bond.
• Mobility motor vehicle dealers - Independent mobility motor vehicle dealers are included in the GDN bond requirement and must provide a $50,000 bond.
• Wholesale dealers - Wholesale dealers who sell only to other licensed dealers must provide a $50,000 bond.
• Wholesale motor vehicle auctions - Wholesale motor vehicle auction GDN holders must provide a $50,000 bond.
• Travel trailer and trailer/semitrailer GDNs - These license types are exempt from the Texas security requirement. Franchised motor vehicle and franchised motorcycle dealers are also exempt from the surety bond requirement.

The bond protects customers from financial loss tied to a dealer’s failure to meet the obligations covered by the Texas bond. A claim can involve issues such as:

• Failing to transfer a good title to a vehicle that the dealer sells
• Failing to pay valid bank drafts, including checks, used to purchase motor vehicles
• A qualifying court judgment for damages and attorney’s fees tied to an act or omission covered by the bond
• Bond claims made during the active GDN license term
• Any other covered breach of the Texas Motor Vehicle Dealer’s Surety Bond conditions

The maximum payout per bond is the bond’s penal sum: $50,000. After any payout, you, as the principal, are liable to reimburse the surety.

How the Claims Process Works?

• Consumer or claimant contacts the surety company or obtains bond information through TxDMV if needed
• The surety reviews the claim and supporting documents to determine whether it is valid under the bond
• If the claim is valid, the surety pays the claimant up to the bond’s penal sum ($50,000)
• The surety reports any payment to the Texas Department of Motor Vehicles
• The dealer (principal) is then required to reimburse the surety for any amounts paid out

Texas GDN licenses are valid for two years, and your motor vehicle dealer surety bond must be valid for the same license term.

The bond must begin on the first day of the month and expire on the last day of the month two years later. The expiration month is the month before the start month.

Lance Surety will contact you well in advance of renewal so you can keep your Texas dealer bond active and avoid a lapse in coverage.

At renewal, the surety company may review your credit and claims history. Maintaining a strong credit profile can help keep your premium costs low.

Getting a Texas auto dealer license starts with choosing the correct GDN license type and completing the TxDMV eLICENSING application. Texas may also require business registration details, owner identification, premises information, signage, and bond documents.

You can find the official license details on the Texas Department of Motor Vehicles' Independent GDN License page.

For more information on how to get the licence, check our guide: Texas dealer license

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

The bond amount, also called the penal sum, is the maximum protection available to customers — $50,000 for Texas GDN dealer bonds. This is not what you pay. The bond premium is the cost you pay to purchase the bond, which is a percentage of the bond amount. Texas dealer bonds are issued for the two-year license term.

What happens if my bond lapses?

If your bond lapses, your dealership is no longer meeting the Texas GDN security requirement. This can put your dealer license at risk and may prevent you from legally operating until the bond issue is corrected.

Can my bond be cancelled?

Yes, a surety bond can be cancelled by you or by the surety company. If the surety cancels the bond, Texas rules require written notice to TxDMV before cancellation. Once the bond is no longer active, your GDN license may no longer meet the security requirements.

Do I need a bond for every GDN category?

Yes. Texas requires a separate bond for each GDN category that requires security. For example, if you apply for more than one covered GDN category, you should expect to provide a separate $50,000 bond for each covered category.

Do I need a separate bond for each dealership location?

It depends on how your GDN is issued. If a single GDN covers multiple locations, the bond must list each physical address. If a separate GDN or category is required, a separate bond may also be required. Contact us if you operate multiple locations and need help matching your bond to your license application.