Better Have a Credit Card If You Plan to Rent a Car

car rental

If you’re thinking about taking a family trip this summer, or simply need to a rent a car for a business trip, make sure you’ve got a credit card handy.

If you show up to a Hertz or an Avis without a credit card, you could find yourself walking away frustrated on foot

Most, if not all car rental companies require a credit card to serve as collateral if anything were to happen to your rental vehicle.

Put simply, car rental companies require a large deposit because vehicles are expensive and prone to theft, damage, and accidents.

Credit cards are acceptable because they typically have large lines of credit that will cover the extent of any costs associated with your rental, while cash and debit cards may fall short in that department.

Most gold and platinum credit cards also provide some form of insurance for rental cars, though the terms and type of insurance vary by card issuer, and may not cover all vehicles and providers.

Or kick in until your own car insurance limits are exhausted.

You Can Use a Debit Card to Rent a Car, But…

  • Two forms of ID are often required
  • They may run your credit!
  • They place a hold on funds on your debit card
  • These funds aren’t available to you until you return the card

Debit cards (also known as check cards) issued under a VISA or Mastercard logo, which draw funds directly from the cardholder’s account, may be used to qualify for a rental, but prepaid and stored value cards typically are not accepted to qualify for a car rental.

Additionally, debit cards must have the available funds for the amount of the rental charges plus an additional amount to cover any incidental charges in order to secure the rental.

You may have to present a second form of identification as well if you forego a credit card.

If a debit card is acceptable, the car rental company may place a hold on an amount in excess of the estimated rental charges, limiting your ability to use those funds until the car is returned.

The hold may take up to 2 weeks to be released by your bank, creating a huge headache if you need access to those funds during the trip or shortly after.

For example, if they earmark $500 from your debit card for the rental, you won’t be able to touch that money until you return the car and the money is released. This can be a problem if you need that money, or simply don’t have a lot of cash on hand.

Conversely, if you used a credit card they would simply rely on the credit line if something were to go wrong. They’d still place a hold on some amount of the total line, but you’d likely still have access to thousands of dollars, depending on your credit limit.

You Can Reserve with Credit and Pay a Different Way

Keep in mind that debit cards, prepaid credit cards, or stored value cards issued under a VISA or Mastercard logo may be used as a form of payment when you return the vehicle, so you don’t actually have to pay for the rental with a credit card.

It’s just handy to use a credit card for the deposit portion of the deal…

And cash rentals may be accepted with special ID cards issued by the rental companies (Cash Deposit Identification Card), though they may carry additional fees, and typically take several weeks to apply for, so you need to arrange this type of payment well in advance of your rental.

At the end of the day, a credit card is probably the best way to go in terms of convenience, price, and potential benefits like supplementary car insurance coverage.

These days, most folks seem to know that a lot of credit cards provide some form of insurance when used to rent a car.

For example, Chase Sapphire Preferred offers primary auto insurance coverage on rental cars via a Collision Damage Waiver.

They even say to decline the rental company’s collision coverage and charge the entire rental cost to your credit card.

Then if you happen to get in a collision, the coverage provided by Chase is primary (before your own car insurance kicks in, saving a lot of headache). They also say theft is covered, which makes it sound more like physical damage coverage.

Loss of use is also included, which is important because car rental companies will claim they’re losing business each day the car isn’t in operation. And that can get expensive.

For the record, there are also limitations to this coverage, such as depreciation to the vehicle as a result of an accident. And liability isn’t included (if you hit someone/something).

So it’s not complete coverage by any means, but it is a start and you might be able to avoid paying for the car rental company’s insurance, which could save some bucks, especially on a lengthy rental.

Be sure to check your credit card’s terms to see if it offers primary or secondary car insurance coverage to determine if you can decline coverage when renting a car.

You’ll need to consider your existing auto insurance coverage as well, assuming you have it.

[By the way, did you know State Farm offered credit cards? Strange, but true.]

Don’t Ding Your…Credit

Okay, so we know credit cards are helpful in terms of bearing some of the potential insurance costs when renting a car.

But a lesser-known secret is that renting a car without a credit card may result in a credit inquiry.

While renting a vehicle isn’t a traditional line of credit, it is an expensive item that the company trusts you with, at least for a couple days.

If you happen to damage the vehicle, it could cost the car rental company quite a bit of money in damages and/or profits.

However, if you rent a car with a credit card the company can rely on that large line of credit to cover any potential losses.

The way they see it, you’ve got credit if and when needed, so there’s no need for them to do a background check.

Conversely, if you whip out your debit card (don’t even bother trying to rent with cash), the car rental company may need to run your credit to see if you’re an acceptable credit risk.

If it turns out you have poor credit, they might ask that you use a credit card to pay for your rental…if you don’t have a credit card, they might tell you that you’re simply out of luck.

In any case, this type of credit check will result in a credit inquiry, which as most people know, can lower your credit score. So it’s not optimal to rent a car with a debit card for more reasons than one.

Keep in mind that you can probably pay for your rental in cash or debit once you return the car, but in order to rent it to begin with credit is king.

Read more: The pros and cons of credit cards.

Tip: You can also earn points on your car rental, perhaps even in a multiple-point earning category like travel!

By Colin Robertson

Colin created this blog after spending several years in a job that required him to scour credit reports on a daily basis. His goal is to help individuals better understand their credit and get the most out of credit cards.

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