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Don't use debit card for car rental

Debit cards have become the preferred way to pay for many things. According to the Federal Reserve, debit card transactions have been growing more than 20 percent annually and have surpassed credit card transactions. That's not surprising when you know that debit cards have replaced cash for everyday items such as gas and groceries.

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But, some consumers reach for the debit card for higher-ticket items.

"Many people use debit cards for expedience," says Tim Sloane, director of the debit advisory service at the Mercator Advisory Group. "Others, like revolvers, who carry a credit card balance, don't want the balance on their credit cards to grow larger. Anything they don't want to put on credit, they put on debit."

For most companies, accepting a debit card is not a problem. For car-rental companies, though, the customer is driving away with the merchandise, and, unlike a TV, the customer is expected to return it.

Most of the major rental companies require a credit card to initiate the rental, even if a debit card will be used to make payment upon return of the car. And most companies will accept only a co-branded Discover, Visa or MasterCard debit card.

Those companies that do allow a rental with a debit card often put an authorization hold on the debit card during the rental, usually between $300 and $500. Yes, the unused funds will be returned to your account after you return the car, but it might take up to two weeks for the funds to be released back to your account.

Credit cards also have authorization or holding fees. When you use a credit card to rent a car, the estimated amount of the rental will be put on the card but the transaction is not put through, thus the term "holding" fee.

When you return the car and keep the charges on that credit card, the transaction is processed. If you choose to pay with a different card or a debit card, the transaction on the first card is canceled and put on the debit or other credit card. However, it may take time for that hold or authorization on the first credit card to be removed. If you change form of payment, be sure to ask the car rental company to remove the hold.

Next: Car rental companies' debit card policies
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