The best way to pay for a rental car: Credit card or debit card?

Not long ago, the only way you could rent a car was by using your credit card – no ifs, ands or buts. If you asked to book your rental with a debit card or cash, you’d get a resounding “no way” for an answer.

Credit cards are still the universally accepted method of rental car payment and the most hassle-free. And in most car rental locations, you’ll have the flexibility to book the car with your credit card and when you return the car, pay with your debit card or cash. Today, many car rental agencies accept debit cards (and a small number accept cash) as payment before you drive the car out of the lot. But beware: Policies concerning non–credit-card rentals vary not only among agencies but often differ between branches of the same agency. So, you may need to call the branch first to make sure it accepts non–credit-card booking.

The benefits of booking with a credit card

• If the rental agency tacks on charges you think are in error, you can dispute the charges through your credit card company. The rental company is more likely to negotiate because they haven’t yet been paid for the portion of the bill that is not in dispute. With a debit card or cash payment, on the other hand, they have your money immediately, making it less likely that they’ll negotiate a dispute.
• There’s often no need for you to buy insurance for the rental when you use a credit card. In most cases, the insurance policy for your own car will cover you when you drive a rental (check your policy for specifics). But even if you are not a car owner and don’t have your own auto insurance policy, check the benefits of your credit card – many provide rental coverage comparable to a car owner’s policy at no extra cost. Alliant Visa credit cards include Visa’s secondary Auto Rental Collision Damage Waiver coverage. If you have personal automobile insurance or other insurance covering rental car theft or damage, Visa’s collision damage benefit provides secondary coverage that may reimburse you for the amount of your personal insurance deductible or other charges, including valid administrative and loss-of-use charges not covered under your personal insurance policy. If you don’t have your own insurance policy, it provides reimbursement for damage due to collision or theft up to the actual cash value of most rental cars in your country of residence.
• You won’t give the rental car agency direct access to your bank account (which you’ll have to do with a debit card).
• You won’t have to undergo a credit check, which might adversely affect your credit rating. A credit check could lower your credit score by five points, according to FICO.

The pros and cons of booking with a debit card

• If you are close to maxing out your credit card limit, using a debit card may be the best way to go. It may be the only way to go if you don’t have a credit card.
• If you pay with a debit card, you won’t be subject to the interest charges that accrue with unpaid credit card balances.
• You’ll undergo a credit check by the rental agent, affecting your credit score and making your wait at the rental counter longer.
• You may be required to provide extra proof of your identity, such as a utility bill, pay stub or round-trip airline ticket.
• You may be required to buy car rental insurance even if your own auto insurance covers you when driving a rental car. This duplicate insurance coverage can boost your car rental cost by 35% or more.
• You may be subject to certain restrictions. You’ll likely be excluded from renting an SUV or luxury car. Plus, you may be restricted to driving the car only in the state where you rent it.
• You’ll likely be zapped with a security surcharge of $200 to $500. The rental agency will reimburse this surcharge if you return the car undamaged, on time, within the mileage limit (if there is one) and with a full tank of gas.
• When you pay, the rental agency takes the charge out of your bank account. That means the rental car company will put a hold on the funds in your bank account for the rental charge and the surcharge. Those funds won’t be available to you during the trip.

More credit card and debit card spending tips

• 5 tips for using credit and debit cards abroad
• Is a higher credit card limit a good thing?
• How to use credit cards to build credit