Prepaying For Your Rental Car Might End Up Costing You Money. Here's Why

Transportation often represents the largest expense in any travel budget. According to finance site Value Penguin, the average American family dedicates approximately 44% of their travel spending to transportation costs alone, and that doesn't mean just airfare. It also takes into account public transportation, gas, toll fees, and services like rental cars. With nearly half of your vacation fund going straight to transport costs, it's only natural to want to resort to cost-cutting measures. This may lead you to want to prepay for a rental car, as companies usually promise as much as 30% in savings. The downside? Doing so might only handcuff you to a deal that is tough to wriggle out of without incurring extra costs.

Even the best-laid travel plans can go awry. If you pay for a rental car well in advance and later on decide to make modifications (or even cancel), you might not get all of your money back. In fact, you may be asked to pay more. "Prepaying to save money could be your most expensive decision," travel consultant Randi Winter told NBC News. "Like hotels, prepayment for locked-in conditions look like they are going to save you money [but] changes in flight times, dates, cancellations for illness — even getting a better price hotel in a different area — could result in needing to cancel or modify a booking." To illustrate, companies like Hertz and Avis impose cancellation fees that can reach up to $200 and $150, respectively. Sure, prepayings sounds convenient, but it may be more trouble than it's worth.

Just like airfare, rental car costs change all the time. Because they're ever so fickle, locking in a rental car reservation way ahead of time could mean missing out on substantial savings later on. "Rental car pricing algorithms have gone through a period of unexpected change," Michael Taylor, a travel intelligence lead, explained to NerdWallet. "The surging demand, coupled with the lack of rental cars available system-wide, has seemingly caused pricing models to fluctuate much more than in the past."

What's more, a 2022 analysis conducted by the outlet revealed that there's merit to waiting to book. It found that customers who booked a weeklong rental car three months prior to their trip incurred an additional cost of $75 compared to those who secured their rental merely a week ahead of time. Who knew procrastinating and booking at the last minute could sometimes be financially advantageous?

If you're not too keen on the idea of waiting, however, you don't necessarily have to pre-pay for a rental car. What you can do is reserve a car with a company that offers free cancelation and then continue shopping around in the months and days leading to your trip until you find a better deal. Should you stumble upon a better offer, you can simply cancel your initial reservation without penalty. If a better deal doesn't come along, no sweat. You're still in a no-loss situation.

At the car rental desk, be prepared for sales agents to present you with additional services to add to your bill. One common offer is the convenience of prepaying for a full tank of gas, eliminating the need to refuel before returning the car. But economist Hayley Berg shared with USA Today that it may only end up costing you more. "Never prepay for gas. This is a big one. It is tempting when you're signing all the paperwork when you pick up your car to say, 'Oh, just fill up the tank when we get back and charge me for it,' but you're going to pay a huge premium for it," she explained. Just be diligent about filling it up before returning the vehicle, of course, unless you want to pay as much as $7 per gallon.

You also don't want to rely on rental companies for tolls. Some impose what they call a "convenience fee," which can exceed $5 per day, for merely using their transponder, even if you don't end up charging anything on it. That said, you may want to use your own transponder instead, opt to pay in on toll roads that haven't transitioned to fully electronic systems, or better yet, just avoid toll roads altogether.