In this article, we’ll walk you through everything you need to get a Rhode Island car dealer license.
Surety Bond Professionals is a family owned and operated bonding agency with over 30 years of experience. Our expert agents are ready to assist with all your Rhode Island car dealer license bond needs.
What Are the Different Types of Rhode Island Vehicle Dealer Licenses?
The Rhode Island Division of Motor Vehicles (DMV) issues different types of licenses for dealers selling:
- Only new vehicles
- Only used vehicles
- Both new and used vehicles
- Motorcycles and mopeds
This article focuses on the licensing of used car dealers.
What Are the Steps in the Licensing Process?
Before you can complete your license application, you’ll need to:
- Register your business with the IRS and get your Federal Employer Identification Number (FEIN).
- Obtain a retail sales permit from the Rhode Island Department of State.
- Register with the Rhode Island Department of Revenue.
- Obtain a local business permit if required.
- Establish a permanent business location and get it approved by the local zoning board and the Dealer’s License and Regulations Office.
- Purchase liability insurance and Workers’ Compensation insurance (if you will have employees).
- Purchase a $50,000 Rhode Island car dealer bond.
You’ll need to gather these documents and some additional ones for submission with your completed application. Once your application has been approved by the Board, there are a few post-approval tasks you’ll have to accomplish (such as providing proof of liability insurance and paying the license fee) before you’ll receive your license.
Why is a Rhode Island Car Dealer Bond Required?
A Rhode Island car dealer bond is a dealer’s pledge to do business in full compliance with Chapter 1499 of the Public Laws of 1956. And it provides protection for both the state and the public against financial loss resulting from a dealer’s violation of any of those laws. A violation can result in a claim for damages being filed against the bond by an injured party.
How Are Rhode Island Car Dealer Bond Claims Paid?
The surety bond agreement for a Rhode Island car dealer bond is a legally binding contract among three parties: the “obligee” requiring the bond (the state of Rhode Island), the “principal” required to purchase the bond (the dealer), and the company guaranteeing the bond (the “surety”).
The principal bears full legal responsibility for paying claims that the surety determines to be valid. But the surety guarantees payment by the principal and therefore will pay claims on behalf of the principal to ensure that they are resolved in a timely manner. That does not absolve the principal of responsibility for paying them; instead, the principal must repay the surety.
How Much Does a Rhode Island Car Dealer Bond Cost?
Rhode Island car dealer bonds are sold for an annual premium that is the result of multiplying the $50,000 bond amount by the premium rate assigned by the surety on a case-by-case basis. How high that premium rate will be depends on how risky the surety believes paying claims on behalf of the principal to be.
The primary factor the underwriters consider is the principal’s personal credit score, as it’s likely that a creditworthy principal will repay the surety as agreed upon. A high credit score suggests that the risk to the surety is low and is rewarded with a low premium rate, typically in the 1% to 3% range, for an annual premium between $500 and $1,500. With a lower credit score, the premium rate could be on the higher end of this range.
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