“My bank card has a Visa logo on it, so that’s my credit card”. I hear it time and time again from customers. And they are not wrong – at least not fully. Credit card is a misnomer for any card that has a Visa, Mastercard, American Express, or Discover logo affixed to it. Unfortunately, just because the card has one of these logos, it doesn’t mean that it is a credit card. This may seem a bit elementary, but banks mistakenly give misinformation regarding the issue. Credit cards are somewhat of a status symbol to which banks are able to take advantage.
Credit cards are based on a credit line extended to the cardholder based on an individual’s credit rating. As charges are placed on the card, available credit decreases based on the credit line provided by the card issuer. Credit cards also involve interest charges. Interest (denoted as a percentage on monthly statements) is calculated (typically) based on the average daily balance in your account. For instance, if your interest rate is 10% annually, at the end of each billing period, interest is calculated by taking the average daily balance times 1/12 of the interest rate thus resulting in the interest owed – if the balance is not paid off in full at the end of each billing cycle. So how does this affect car rentals and why does it matter?! Debit cards are tied to a bank account which typically has an ever-changing balance. Withdrawals can be made at any time from the account via the debit card. Whereas a debit card may have the option of entering a PIN (like ATM cards), most renters opt for using the card like a credit card. The only similarities between using a debit card and a credit card are the manner in which they are processed. When a credit card is processed for an authorization, it goes through the respective network (Visa, MC, Amex, Discover), checks the available credit and returns with either a approval or denial code. Debit cards process the exact same way, except they check the available balance in the bank account to which they are tied. This is where the similarities end.
So the next logical question would be “If they process the same and do basically the same thing, why isn’t it a credit card?”. So why don’t car rental companies view them the same way? The reason is the same as any company that has potential incidental charges. For instance: If a renter were to use a debit card, take their vacation and spend all of their money, then total the vehicle, the auto rental company would have no recourse (if no deposit was required). And what about the renter’s insurance company? Should they not cover damages? Yes, of course they should – but this does not happen in all cases. Aside from damages, there may be low fuel charges, smoking charges, late fees, etc, etc, etc. With a credit card, even if the card is over its limit, if the card has been used by an auto rental company for the rental, a percentage of over-the-limit charges can be placed on a credit card providing the same card was used to pay for the rental. These reasons are why policies differ for debit cards.