If you've ever hired a car you're probably familiar with the great rate creep, that strange phenomenon in which unforeseen charges get added to your bill at the last minute. You thought the car was going to cost what it said on the website, but it's another story when you front up to the rental counter.

The cost of excess reduction

The largest unexpected cost will likely be the excess reduction product offered by the car rental agency as a way to reduce your liability if there's damage to the car. Then there's the question of whether you actually need it. It can be a tough one to answer when there's a queue of impatient holiday-makers waiting behind you at the rental counter. As ever, the world of car hire insurance is complicated, confusing and rife with tricky little details.

By the time you pay to reduce your liability, the advertised daily rate can nearly double. To hire a basic economy car in Melbourne for a week from Avis you'll ostensibly pay $34.40 a day, but to reduce your excess to from $3017 to $342, you'll be slugged with an additional $24 a day.

For the perplexed customer who doesn't want to be left in the lurch, the price of the car just went from $34 to $58 a day – all in about two minutes.

One industry source told us that excess reduction products are where car rental companies make most of their money. A Europcar spokesperson denied this, while a Hertz spokesperson acknowledged that "ancillary revenues" contribute to sustainable returns. 

Did you know some travel insurers will provide cover for your car hire excess? Find out which ones do in our free and unbiased travel insurance review

What is the cheapest way to reduce the car hire excess?

The good news is there are better ways to reduce your excess liability than the pressure-sale products foisted on you by the car hire companies. Many alternative insurance products are cheaper and have fewer exclusions. But they may not be as convenient. If you do wreck your rental car, you may have to pay the care hire company for the damages and then claim them back from your chosen insurer.

We think that's a small price to pay for knowing what you're getting beforehand and paying lower premiums.

Some of the alternatives include:

  • Standalone car rental excess cover: Companies such as RACV, Tripcover, RentalCover.com, Allianz and Hiccup offer specific car rental excess insurance when travelling domestically. Some of these will also enable you to purchase cover for international car hire. These policies will usually cover all drivers on the rental agreement.
  • Travel insurance: Domestic travel insurance policies, such as those from Good2Go, Worldcare and 1Cover, often contain cover for hire car excess. If travelling internationally, there's a range of travel insurance providers that will offer car hire excess reduction as part of the deal. One advantage of travel insurance is that it covers you for more than just car rental. However, it's charged on a per person basis so if you have more than one driver, you'll need insurance for each person.
  • Credit card travel insurance: Virgin Money offers $2250 cover for domestic car hire excess liability through the complimentary travel insurance provided with its credit cards. Many other credit cards also offer rental car excess cover, but it's for international travel, so be sure to check. Depending on the policy, it may only cover the card holder, and there may be conditions for activating the cover, such as paying for the car rental on the card.

Comparing the alternatives

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. While car hire companies charge between $19 and $43 per day to reduce your standard liability, a standalone alternative can cost as little as $10 per day. Compare this to a regular comprehensive car insurance premium, which according to CHOICE data costs an average of $2.26 a day, and it's pretty clear that rental car excess reduction products are heavily marked-up.

Car hire excess products within Australia

Standard excess liability* Excess reduced to? Daily rate to reduce excess (on a seven day hire) Price to reduce excess (per day)
Avis $3017  $342  $24  $24 
Budget $2850 $342 $22.73 $22.73
Europcar $4180 $1000 $26.55 $26.55
Hertz $4000 $1210
Thrifty $4000  $500
The alternatives

Excess coverage Excess to be paid on claims? Daily rate to cover excess (on a seven day hire)** Daily rate to reduce excess (per day)**
Domestic travel insurance (cover for one adult)
Good2Go $4000-$6000 $50 $5.47 $35.18
Worldcare Travel Insurance $6000 $0 $5.35 $32.35
1Cover $5000  $0  $5.69  $29.85 
 Standalone car rental excess cover (covers drivers listed on rental agreement)
Allianz $4000-$6000  $0 $19.52  $42.47 
$0 $19.52  $42.47 
RACV $1000-$8000  $0 $18  $126 
RentalCover.com $3200-$8200  $0-$50  $8.73  $22.19 
TripCover $4000-$6000  $0
Figures correct as of 26 November, 2015. Comparisons based on a driver aged 25+ picking up an economy car from a central Melbourne location at 10am and dropping off at 10am, either one or seven days later. Some third parties don't offer timed insurance, which means you may need an extra days' cover. Figures may vary based on location and age of driver.

* Not including additional liability for single car accidents.

** Based on covering a minimum excess of $4000.

Choosing a rental car excess cover product

When choosing rental car excess cover, you'll want to consider the following:

  • How long are you going for? If you're not going on holiday for very long, the daily rate through some alternative insurers can be exorbitant, but they're pretty well always cheaper if you're going for a bit longer.
  • How many drivers will need insuring? Travel insurance usually only covers the person on the insurance policy, while standalone rental excess cover products and rental reduction through the car hire company usually covers all drivers on the rental agreement.
  • Will you need cover for flights and hotels? Travel insurance products will cover more than just car hire excess, which can be useful.
  • What's your liability under the rental agreement? If you choose an alternative rental excess cover product, make sure it covers your liability under the rental agreement. 
  • What's your liability in the case of a single vehicle accident? Be aware that your liability will often be higher in the case of single vehicle accidents and for premium cars and motor homes. It's even more important to be aware that some car rental agencies completely exclude single vehicle accidents from their coverage. If this is the case and you want to use a third party excess cover product, check whether they will insure you for single vehicle accidents or not. 
  • What excess will you need to pay in the event of a claim? With some alternative providers, you may have to pay an excess if you make a claim. 
  • What are the exclusions to the cover? Many rental car agencies' products won't cover you in a range of scenarios. Common exclusions include hail damage, damage to windscreens and tyres, and overhead, undercarriage and water damage.
  • What constitutes a breach of the rental agreement? Many alternative providers still won't cover you if you breach 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. 

What's my liability?

It can be incredibly hard to know what you'll be liable for and what exclusions come with car hire excess reduction during the booking process. And perhaps it's no accident that the terms and conditions defy comprehension. For example, we found it impossible to establish the standard liability when booking through Budget's website (we had to call them). And we were still none the wiser after ticking the box for the excess reduction product as the website doesn't specify what your excess will be reduced to.

To help cut through the confusion, focus on the three elements to your cover that you need to be aware of (and be aware that your liabilities may be different when travelling internationally). 

  1. Third-party insurance: In each state and territory it's compulsory to have third party insurance to register a car, so all rental cars should have this. This covers you for injuries you may cause to other people but, oddly enough, may not cover you as the driver of the vehicle. So it's worth asking what protection you have as the driver.
  2. Standard liability or excess: The rental agency's basic cover (also known as collision or loss damage waiver, damage recovery fee, damage liability fee and accident damages excess) sets your potential liability at a certain amount. The amount will vary depending on the car rental company but it will be a hefty sum, usually somewhere between $2850 and $4180. Your liability will often be higher in the case of a single vehicle accident. It's also worth checking that you'll be covered for any damage caused to third party property under the basic cover.
  3. Excess reduction products: You then have the option to pay to reduce this liability, either through the rental agency or through one of the alternatives. Be aware these products only cover you for the excess amount you're liable for and usually have a range of exclusions.

Exclusions and contract breaches

Even if you've reduced your excess to zero through the rental agency, you still may not have waived all of your liability as there are usually numerous exclusions to the cover. And while you may think the basic excess liability is the maximum amount you're liable for, that may not always be the case. For example:

  • You may be required to pay admin fees on top of the standard excess amount if you have an accident.
  • You may be fully liable for damages (even beyond the excess amount) if it occurs as a result of breaching the contract. You may even be held liable for the loss of income to the rental agency while the car is being repaired if you breach the rental agreement.
  • Your liability for single vehicle accidents (usually higher than for multi-vehicle accidents) can't always be reduced to $0, so it pays to check.

Some common exclusions and 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
  • hail, flood, fire, storm or cyclone
  • driving on unsealed roads 
  • having an unauthorised person drive the vehicle
  • using the incorrect fuel type
  • the driver being affected by alcohol
  • damage to windscreens, glass, tyres, wheels, roof and underbody.

Run into trouble?

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 liability 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.

For more info, read our article car hire and your rights.

Hidden fees

While the excess reduction is perhaps the most likely cost to make your hire car bill blow out, there are a bunch of potential extra charges that you should be aware of before you drive.

These include:

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.

Vehicle registration recovery fee

This fee is often tacked onto the quote and charged as a daily rate to recover the compulsory costs of registering the vehicle.

Credit card surcharges

Depending on what credit card you pay with, surcharges tend to vary from 1.5% to 4.95%. Following on from the RBA's ruling in 2013, credit card surcharges should be limited to the "reasonable cost of acceptance" associated with processing the transactions.

Admin fees on tolls

If you're using a rental agency's e-tag system you'll be charged an additional admin fee. Some companies will allow you to use your own e-tag while others don't. Both Hertz and Redspot have a system where you can pay a rate per rental day for unlimited tolls, but it's pricey if you don't use many tollways.

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.

Premium location surcharge

Certain locations (such as airports) will often have a premium location surcharge tacked on. For example Hertz charges a 29% fee if you're renting from Sydney airport. And the extra catch is that because it's a percentage, it's not just applied to the base rate, it applies to everything, including all additions such as excess reduction costs and GPS hire costs.

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 surcharge

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 surcharge

Drivers under the age of 25 are often charged a surcharge. For example, Hertz and Redspot charge 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. 

Heading on holidays?