Alabama Auto Dealer Bond

Enter the business name to obtain a quote:

Alabama Auto Dealer Bond: A Comprehensive Guide for Insurance Agents

BondExhange now offers monthly pay-as-you-go subscriptions for surety bonds. Your customers are able to purchase their bonds on a monthly basis and cancel them anytime. Learn more here.

This guide provides information for insurance agents to help new and pre-owned car dealership owners on Alabama Auto Dealer bonds.

At A Glance:

  • Lowest Cost: $250-$2,500 per year or $25-$250 per month, rates are based on business owner’s credit
  • Bond Amount: $50,000
  • Who Needs It: Required for all new, used, and wholesale dealership owners selling automobiles, RVs, and/or motorcycles in order to activate or renew their Master Dealer license in the State of Alabama. Auto rebuilder shops also need to purchase the bond.
  • Purpose: To ensure the public will receive compensation for any damages should the auto dealer fail to comply with the licensing terms.
  • Who Regulates Dealers in Alabama: The Alabama Department of Revenue, Motor Vehicle Division, is in charge of licensure and regulation of motor vehicle dealers.


Alabama House Bill 393 amends statute sections 40-12-264, 40-12-390, 40-12-391, 40-12-392, 40-12-393, 40-12-395, and 40-12-398 relating to motor vehicle dealer licensing. As of October 1, 2020, all automotive dealers who wish to sell, advertise, or negotiate the sale of a motor vehicle must obtain a Master Dealer License. The Master Dealer License is a combination of four previous licenses:

  • New Dealers
  • Used Dealers
  • Wholesale Dealers
  • Rebuilders

How Can an Insurance Agent Obtain an Alabama Auto Dealer Bond?

BondExchange offers a streamlined service that makes obtaining an Alabama Auto Dealer Bond easy. Simply login to your account and use our keyword search to find the “master dealer” license in our database. Don’t have a login? Gain access now and let us help you satisfy your customers’ needs.

At BondExchange, our 40 years of experience, leading technology, and access to markets ensures that we have the knowledge and resources to provide your clients with fast and friendly service whether obtaining quotes or issuing bonds.

Not an agent? Then let us pair you with one!

BX Agent Finder Link

Click the above image to find a BX Agent near you

What is a Master Dealer License?

The Alabama Master Dealer License is a professional license issued by the state of Alabama permitting a dealer to buy, sell, advertise or negotiate the sale of a motor vehicle. Possession of the Master Dealer License ensures that dealers are operating legally and in full compliance with the regulations set forth by the Alabama Department of Revenue, Motor Vehicle Division.

Why Was the Master Dealer License Created?

Code of Alabama 1975 requires auto dealers to be licensed so that both the State of Alabama and its residents are financially protected should dealers fail to comply with the laws of the state. In 2020 the Master Dealer License was created to combine the four previous dealer licenses into a single (master) license class. Previously, dealers were required to obtain a new, used, wholesale, and/or rebuilder license depending on the nature of their business. The Alabama Auto Dealer bond previously had a limit of $25,000, and the new legislation amendments require a new bond at the increased $50,000 limit. Legislators introduced the bond amount increase primarily to combat the illegal practice of curbstoning, which consists of auto dealers selling vehicles privately to evade licensed dealer regulations.

How Do Dealers Apply for a Master Dealer License in Alabama?

License Period – The dealer license period begins on October 1st and ends on September 30th of the following calendar year. All licenses expire on September 30th regardless of whether the license was issued on October 1st of the prior year or at some date later in the license year. There is a 30 day grace period afforded to all dealers, meaning licensees who want to continue their license must renew it by no later than October 31st of the subsequent license year to maintain a valid license.

Step 1: Permanent Business Location – Motor vehicle dealers (retail, wholesaler, rebuilder or reconditioner) must have a permanent business location. Each permanent location must be owned or leased by the sole proprietor, a partner, LLC member or corporation. If you are a retail dealer, you are required to have a permanent sign that meets the sign requirements as referenced in Alabama Code Title 40. Revenue and Taxation § 40-12-392

Step 2: Blanket Liability Insurance – Dealers must purchase and maintain blanket liability coverage for all vehicles owned and/or associated with the business. The insurance limits are:

  • $25,000 bodily injury/person/accident
  • $50,000 combined bodily injury/accident
  • $25,000 property damage/accident or a combined single limit of $75,000/accident
  • Evidence of such coverage, in the form of an insurance certification form generated through the dealer license website, must accompany the application receipt.

Step 3: Sales Tax Number – If the licensee sells any motor vehicles to non-dealers, they must obtain a sales tax number in the same name as the business. No application for a new or used retail dealer’s license will be accepted without a sales tax number for the business. To apply or register for a sales tax number, you may go to Alabama Business Taxes. For more information on Alabama sales tax rates, visit sales tax rates.

Step 4: Complete the Application – All new dealer regulatory license applications and dealer regulatory license renewal applications shall be filed electronically through the following website: Application page. Upon completion of the application, the transmittal sheet must be printed and mailed to the Department along with supporting documents specified on the transmittal sheet, including the surety bond. Instructions can be found online at FAQs.

Step 5: Local Privilege License – Obtain an auto dealer’s privilege license at your local county licensing office.

Step 6: Application Fee – Equal to the average cost of dealer license fees of states bordering Alabama rounded to the nearest $25 – this amount is subject to review every five years. The current application fee is listed at $125.

Step 7: Supplemental License Dealers with multiple locations must obtain a supplemental license for each additional place of business and pay a $5 application fee with each supplemental license.

How Does a Motor Vehicle Master Dealer Renew Their License?

All dealer regulatory license renewal applications must be filed electronically through the dealer license website located here. Instructions for the renewal process can be found online at Alabama dealer license FAQ.

  • License renewals are due by September 30th of each year
  • Must renew by no later than October 31st of the subsequent license year to maintain a valid license.
  • Must provide proof of blanket garage liability insurance on the Alabama DOR’s certificate form (generated during the application).

What Are the Insurance Requirements for the Master Dealer License?

To obtain a Master Dealer License, your client must submit a Master Dealer surety bond with a limit of $50,000 (previously $25,000, see our blog for details on the change) to the State Commissioner of Revenue. Auto dealers must also obtain blanket garage liability insurance and provide proof of insurance to be eligible for a license. Failure to maintain blanket garage liability insurance can result in a $5,000 civil penalty. The minimum garage liability insurance is as follows:

  • $25,000 bodily injury/person/accident
  • $50,000 combined bodily injury/accident
  • $25,000 property damage/accident or a combined single limit of $75,000/accident

How Much Does the Alabama Auto Dealer Bond Cost?

The Alabama auto dealer surety bond can cost anywhere between $250 to $2,500 per year or $25 to $250 per month. Insurance companies determine the rate based on a number of factors including your customer’s credit score and experience. We offer the financing option “in-house”, so your customer doesn’t have to deal with pesky 3rd party financing with high-interest rates and lengthy paperwork! The chart below offers a quick approximate reference for the bond cost.

Credit Score* Bond Cost (1 year) Bond Cost (1 month)
750+ $250 $25
680 – 749 $300 $30
629 – 679 $400 $40
619 – 628 $500 $50
600 – 618 $1,000 $100
580 – 599 $1,500 $150
570 – 579 $2,000 $200
500 – 569 $2,500 $250

*The credit score ranges do not include other factors that may result in a change to the annual premium offered to your customers, including but not limited to, years of experience and underlying credit factors contained within the business owner’s credit report.

How Does the Dealer File Their Bond With the Alabama Department of Revenue?

The $50,000 surety bond requires signatures from both the surety company that issues the bond and the auto dealer. The bond form will require the following items:

  1. Legal name of individual(s) buying the bond
  2. City, county, and state where the business is located
  3. Surety company’s name and signature
  4. Date on which the bond will be executed
  5. Signature of all business owners

Dealers should mail the completed bond form, including the power of attorney, to the following address:

Department of Revenue
Motor Vehicle Division
2545 Taylor Rd
Montgomery, AL 36117

Why Does Alabama Require the Motor Vehicle Master Dealer Bond?

Alabama requires dealers to purchase the Master Dealer Bond as part of the application process for the Master Dealer License. The Master Dealer bond ensures that the public will receive compensation for financial harm should the auto dealer fail to comply with the licensing terms and that the dealer will pay all required taxes to the Department of Revenue. The bond acts in favor of those doing business with the dealer and as a bottom line barrier to entry for the dealer to operate.

What Can Dealers Do to Avoid Claims Against the Alabama Auto Dealer Bond?

To avoid claims on the Master Dealer Bond, dealers should adhere to the following practices:

  1. Pay taxes on time and in full. Dealers should consider setting aside tax obligations as they accrue.
  2. Do not engage in the illegal practice of curbstoning
  3. Maintain blanket garage liability insurance at all times, failure to do so can result in a $5,000 penalty assessed against the bond
  4. Register for and renew your Master Dealer license by the deadline, a $500 fine for an initial violation will be issued followed by $1,000 fines for repeat offenses
  5. Obtain an off-site sales license 10 days prior to conducting an off-site sale and list all parties facilitating the sale on the application
  6. Adhere to the dealer license plate regulations approved by the state
  7. Pay your $125 application fee.

How Can Insurance Agents Obtain Blanket Garage Liability Insurance for their Customers?

Bonds are our only business at BondExchange, so we do not issue any form of liability insurance. Our agents often utilize brokers for this specific line of business. A list of brokers in this space can be found here.

See what other insurance agents are saying about our online platform

Call 1 (800) 438-1162 Now
to talk to a bond expert
If you’re an agent currently working in the State of Alabama, we would love to hear from you.

Alabama Auto Dealer Bond