Don't you love it when you book a car thinking you're getting a pretty good deal, only to find the price has nearly doubled when you go to pick it up?
It seems the car hire company forgot to tell you about the extra charges you'll need to pay if you want to lower your insurance excess (the amount you're liable for if the car gets damaged) from, say, $4500 to $700.
The unexpected hit can be as much as an extra $40 a day, thus bringing your once affordable car hire well into the realm of unaffordability.
You don't have to pay to have your excess reduced, of course, but car hire staff around the world seem to be well-versed in convincing you that it's a really good idea to do so.
Otherwise they'll charge the full excess in case of an accident, and you'll just have to trust them to put the money back on your credit card should the repairs cost less than that. And, of course, this shakedown is happening while you're in the tumult of travel, under pressure, with people fidgeting in the queue behind you.
It's one of the biggest bamboozle tactics going, and it doesn't look like it's going away anytime soon.
The cost of excess reduction in Australia
After shelling out to reduce your liability from the standard excess offered by the car hire company to something more reasonable, the advertised daily rate that lured you in will seem like a distant memory.
To hire a basic economy car in Melbourne CBD for a week from Avis you'll ostensibly pay $39.60 a day, but to reduce your excess from $4500 to $630 for the same hire, you'll be slugged with an additional $30.15 a day.
For the perplexed customer who doesn't want to pay $4500 if someone dings the bumper, the price of the car just went from $40 to $70 a day – all in about two minutes.
An industry source told us that excess reduction products were where car rental companies make most of their money.
A Europcar spokesperson denied this, while a Hertz spokesperson acknowledged that "ancillary revenues" do significantly contribute to the bottom line.
An industry source told us that excess reduction products were where car rental companies make most of their money.
It turns out there are better ways to reduce your excess liability than succumbing to the pressure-sale tactics at the car hire counter. Many alternative insurance products are cheaper and often have fewer exclusions.
While car hire companies can charge anywhere from around $20 to nearly $45 per day to reduce your standard liability, standalone alternatives can cost as little as $10 per day.
So what's the catch? The alternatives may not be as convenient.
If you're in an accident in your rental car, you may have to pay the car hire company for the damages and then claim them back from your chosen insurer.
For some, that's a small price to pay for saving up to $35 a day.
Standalone car rental excess cover
There are a number of companies that offer specific cover for your car rental excess liability when travelling domestically. Some of these companies also allow you to purchase cover for international car hire. These are often the cheapest option for short trips. One of the benefits is that these policies will usually cover all drivers on the rental agreement.
Both domestic and international travel insurance policies often contain cover for hire car excess. One advantage of travel insurance is that it covers you for more than just car rental. However, it can be an expensive option for short trips and it's charged on a per person basis, so if you have more than one driver you'll need insurance for each person. For longer trips, however, it can be a good option, and may include additional cover for delays and lost luggage.
Credit card travel insurance
Credit card travel insurance doesn't usually cover domestic car hire, but if you're travelling internationally many do cover the rental car excess component. Depending on the policy, it may only cover the card holder, and there may be conditions for accessing the cover, such as paying for the car rental on the card.
We took a look at the cost of reducing your excess directly through the car hire company and compared that to some of the alternatives available in Australia.
If using an alternative excess cover provider, you'll need to determine your liability to the car hire company in order to know how much cover you need from the alternative provider.
But – this be the bewildering world of car hire – it can be a very tall order to find out exactly what you're liable for and which exclusions (situations you aren't covered for) will be applied.
Here's a general breakdown of your liability in Australia (your liabilities may be different when travelling internationally).
- Injury to third parties: In each state and territory it's compulsory to have third party insurance to register a car, so all rental cars have this as well. It covers you for injuries you may cause to other people but may not cover you as the driver of the vehicle. Some car hire companies offer personal accident insurance to cover this (for a fee).
- Damage to the rental vehicle and third party property: As detailed above, car hire companies in Australia usually have a standard liability/excess which includes a basic cover as part of the rental fee (also known as collision or loss damage waiver, damage recovery fee, damage liability fee and accident damages excess). This reduces your potential liability for damage to the rental vehicle and third party property to a set amount. The amount will vary depending on the rental company but it will be a hefty sum, usually somewhere between $4000 and $4560. Your liability may be higher than this in certain circumstances (e.g. single vehicle accidents or due to exclusions in the agreement). You can pay to reduce this liability further, either through the car rental company or through one of the alternatives. Be aware these products only cover you for the excess amount you're liable for and are subject to a range of exclusions.
Even if you pay to reduce your excess to zero, either through the car hire company or an alternative provider, you're unlikely to have waived all of your potential liability. That's because there are usually numerous exclusions to the cover, which means there will be a number of scenarios where you will have no cover at all (and it's not usually possible to purchase cover for such scenarios).
- You may be fully liable for damages (even beyond the standard excess amount) if it occurs as a result of breaching the contract or as a result of an excluded activity.
- If the car is off the road as a result of damage, you may also be held liable for the loss of income to the rental agency while it's being repaired.
- Your liability for single vehicle accidents can't always be reduced to $0, so it pays to check.
- Admin fees and towing fees are often not covered through the standard excess amount if you have an accident, so these will likely be an additional cost if you run into trouble.
Common rental agreement breaches include:
- disobeying road rules or being in contravention of any law
- driving outside any town or city limits in WA or NT between dusk and dawn
- driving on unsealed roads
- an unauthorised person driving the vehicle
- using the incorrect fuel type
- driving under the influence of alcohol.
When choosing rental car excess cover, you'll want to ask the rental agency about the following:
What's your liability under the rental agreement?
This will help you determine how much excess cover you need.
- What is the rental agency's standard liability/excess for the vehicle you are hiring? Liability for luxury vehicles and 4WDs is often higher than for standard vehicles.
- Are there exceptions when your liability may be higher than this, such as for single vehicle accidents, or for younger drivers?
What are the exclusions to the cover?
Many rental car agencies' products won't cover you at all in a range of scenarios. This is important as it means you have no cover at all in these scenarios and your liability may even extend beyond the standard liability/excess. It's also important to ask any third party excess cover providers if they have any exclusions with their cover. Common exclusions from the rental agency include: damage to windscreens and tyres, overhead and underbody damage, accidents involving a single vehicle or damages as a result of a breach of the rental agreement.
What constitutes a breach of the rental agreement?
It's fairly standard, among rental agencies, and alternative third party providers, to exclude cover you if you've breached the rental agreement. Examples include driving while under the influence, driving on unsealed roads, using an undeclared driver, driving recklessly or otherwise breaking the law.
If you're unfortunate enough to have an accident in your rental vehicle, there are a few tips to keep in mind.
- If there's any damage that needs to be repaired, get an itemised receipt for the cost of repairs. If there is anything suspicious, challenge it. We've heard of cases where rental agencies have added on hundreds of dollars' worth of extra "miscellaneous fees" in addition to the repair costs. These charges were dropped when challenged.
- While it goes against Australian Consumer Law guidelines, rental agencies sometimes charge the maximum damage excess fee without a repair quote, or place extra charges on your card without first giving you a chance to dispute them. If this happens, you can try seeking a chargeback through your credit card company.
While excess reduction products are perhaps the most likely item to make your hire car bill blow out, there are an exorbitant number of other fees and charges that can add to the rate creep.
Be aware that any percentage-based surcharges, such as administrative fees, premium location surcharges and mandatory taxes such as the GST, are usually applied to the total cost of the bill. This can really add up as they will not only apply to the hire costs, but to any excess reduction products you purchase as well as other add-ons and fees, such as car seat and GPS hire and one-way hire costs.
Some of these fees and add-ons (some optional, some unavoidable) include:
- Vehicle registration recovery fee: This fee is often tacked onto the quote and charged as a set daily rate to recover the compulsory costs of registering the vehicle.
- Administrative fee: It's common practice among car hire companies to charge an unavoidable administrative fee of around 3.5% on top of the total cost.
- Premium location surcharge: Certain locations (such as airports) will often have a premium location surcharge tacked on – and these can be quite hefty. For example Avis charges a 27% surcharge if you're renting from Melbourne airport.
- Credit card surcharges: Car hire companies are allowed to charge a surcharge for card payments, however they can't be higher than the reasonable cost of processing the transaction. The RBA's guide suggests that payments using Visa or Mastercard may cost the business around 1–1.5% of the transaction and 2–3% for payments with American Express.
- Admin fees on tolls: If you're using a rental agency's e-tag system you'll usually be charged the toll plus an additional daily admin fee. Some companies will allow you to use your own e-tag while others don't.
- Cancellation charges: A cancellation fee will generally apply if you don't cancel within a certain time period.
- One-way/relocation fees: If you want to drop the vehicle in another location you'll likely be charged a fee for the convenience. You may also be slugged an extra charge for returning accessories to different locations. For example, Budget charges a $250 fee (plus admin fees) for its GPS system if it's dropped off at a location that hasn't been pre-approved.
- Additional driver fee: If you want more than one person to be authorised to drive the car, hire companies will often charge a fee per day for additional drivers.
- Excess kilometres: There's often a limit to how many kilometres you can drive. If you go over this limit, you'll be charged extra by the kilometre.
- Refuelling fee: If you don't return the car with a full tank, and haven't chosen a pre-paid fuel option, you'll be charged a premium fuel price for the convenience.
- Young driver fee: Drivers under the age of 25 are often charged a fee. For example, Hertz charges an extra $16.50 per day while Thrifty charges $27.50 a day.
- Early return fee: If you return the car early, some companies charge fees to compensate for loss of rental income, but you should still receive back the charge for the unused days.
- Late fees: Some agencies have longer grace periods than others if you return the vehicle after the agreed time. Hertz starts charging an hourly rate after 29 minutes while Thrifty charges a third of the rental rate for returns up to three hours late and for the full day for returns thereafter.
- Fee for losing your GPS or accessories: Many of the accessories you rent with the car, such as the GPS, will likely not be covered by insurance, and you may be up for a hefty fee if you lose them. For example, Budget charges $300 plus an admin fee and GST if you lose a GPS unit.