Debit or Credit Card: Which to Use for Car Rentals

There’s not a whole lot of difference between credit cards and debit cards when it comes to paying for services. But benefits—rewards points, for example, and secondary or primary car rental insurance – definitely favor credit cards all the way.

If you ever rented a car and had to pay the extra fee for collision damage coverage, then you understand how valuable this benefit is. Car rental companies charge anywhere from $11 to $35 per day for this additional coverage. Using a credit card – especially the right credit card – can eliminate this charge completely.

Car rental coverage actually runs with the credit card network, not with issuing banks. Visa, MasterCard, American Express and Discover all provide some type of rental car insurance, though MasterCard offers it only on its World cards.

In order to activate coverage, you need to charge the entire car rental to the credit card that you're using. Then, when you initiate a rental, you must decline the collision damage coverage offered by the car rental company. This decline is referred to as a collision damage waiver or CDW.

There are two types of car rental insurance offered by credit cards. Secondary coverage is offered by all four major credit card companies. You must have primary coverage through your regular car insurance carrier, then the secondary coverage offered by the credit card network will cover your deductible. But they typically also include towing and loss of use of the car by the rental company during the repair period.

Before initiating this combination of coverages, you must first contact your primary insurance carrier to make sure they cover car rentals. They typically do, as long as the retail value of the rental car is equal to or less than the retail value of your current car.

The second type of car rental coverage offered by credit cards is primary coverage. This is a good choice if you have no primary car insurance policy, or you have a policy that does not provide collision and comprehensive coverage. Primary coverage is only available on select cards.

There are certain limits in regard to car rental insurance provided by credit cards. For example, none of the cards offer coverage for high-end cars (generally valued at $50,000 or higher), full-size vans, antique cars, trucks or off-road vehicles. American Express limits coverage on SUVs to very select models.

Coverage is typically limited to no more than 15 days for domestic rentals and 31 days for international car rentals. Roadside assistance may also be available at an additional fee, though that's usually provided by the car rental company.

Coverage by credit card companies will typically include only drivers who are also cardholders or authorized users on the credit card account. If a driver isn't an authorized user, the coverage will not apply. Each card also has a time limit within which you must file a claim after which the coverage will no longer apply.

Chase Sapphire Preferred Card. Primary coverage is available and provides reimbursement up to the actual cash value of the vehicle for theft and collision damage for most rental cars in the United States and abroad (always check to verify your coverage before renting). 

Chase Sapphire also offers other travel rewards, including 2X points on travel when you use the card to pay for airfare, hotels, cruises, rental cars, train tickets, taxis, tolls and other travel charges. They also offer 2X points for dining, which includes everything from fast food to fine dining.

American Express. American Express cards provide secondary car rental insurance, but they also offer primary coverage. You pay a flat rate of $19.95 or $24.95 per rental period ($15.95 or $17.95 for California residents). That’s per rental period, not per day. The coverage provided is not subject to a policy deductible. You pay only when you rent, and coverage is available for rentals of up to 42 days.

Coverage under the $24.95 option includes up to $100,000 for damage or theft to the rental vehicle, up to $100,000 for accidental death or dismemberment, up to $15,000 per person for secondary medical expenses and up to $5,000 for secondary personal property coverage.

The coverage is available on any card issued by American Express, but if you want to include a full range of travel benefits, you can go with the Premier Rewards Gold Card from American Express. The card allows you to earn 25,000 points after you spend $2,000 on purchases on your new card within the first three months of membership. You get 3X points for flights booked directly with airlines, 2X points at gas stations in the United States, 2X points for purchases at U.S. supermarkets, and 2X points at U.S. restaurants. (1X points on other purchases.)

Both cards are good deals for regular travelers. (See also 5 Ways to Maximize Your Credit Card Points.)

This point cannot be emphasized enough. Credit card car rental insurance coverage is complicated to start with, but it is even more involved since it will require coordination between the credit card company, rental car company, and your primary insurance carrier in the event that you need to file a claim.

There are all kinds of seemingly minor provisions that could invalidate your coverage. For example, credit card companies typically refuse to pay a claim if the car rental is used for business purposes. There are also some countries where the coverage will not apply (typically Ireland, Italy, Israel, Australia and New Zealand, but there may be others).  (See also 8 Things You Need To Know Before Renting A Car.)

If you’re going to rent a car, be sure to verify your coverage with both your primary insurance carrier and your credit card company, and you should be good to go. This is a valuable benefit that can be even more important than rewards points and certainly makes using a credit card the logical choice over a debit card.