Don't Overpay for Your Next Rental Car

(Image credit: jodi jacobson (jodi jacobson (Photographer) - [None])

published 21 May 2019

Ryan: What could be easier and more transparent than renting a car? Oh, right, everything. But never fear, Kiplinger car guru David Muhlbaum joins us for a discussion on rental car strategies in our main segment. On today's show, Sandy and I give you job search advice amid historically low unemployment, and I do my best Alex Trebek impression in a game of personal finance Jeopardy. That's all ahead on this episode of Your Money's Worth. Stick around.

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Ryan: It's May. That means graduation season is upon us, so we wanted to talk about the sort of job hunt situation for new grads. It just so happens that we have... it's almost like we planned these issues... we have an interview in the June 2019 issue with a gentleman from the National Association of Colleges and Employers, an organization I wasn't aware existed when I was looking for job out of college. It would been nice to know these people. But, the unemployment rate is at historic lows, and so we expect U.S. employers to increase hiring of new college grads... I believe the story says... by 11% compared with last year. Companies are filling talent as baby boomers retire, and grads can expect to receive multiple job offers. Did you receive multiple job offers when you finished college?

Ryan: Yeah. But that's sort of what they're on the lookout for, communication skills, critical thinking, project management. These are all things that you should accentuate. One of the other things that appears in that interview is that even though unemployment is so low and the hiring rate is increasing, pay is increasing quite a bit more modestly, so negotiating a salary, unless you have a desirable graduate degree or are in a sort of fast-growing field, might be tricky. One thing that we want to talk about... dovetailing off of that... is that salary might not be the most important thing, or only thing, that you're negotiating for.

Sandy: That's right. If you're getting multiple offers... and you know, good on you... but don't just look at salary, because increasingly the benefits are going to really account for a big part of the value of this job. When I was looking for jobs years ago, and you asked about health care benefit, health insurance, they would say, "Oh, we just offer the standard package," or "Yeah, we offer retirement benefits." Well, that just doesn't cut it anymore, because there really is a huge variation in the value of the benefits and even how they'll affect your paycheck. Think of it this way, if you take a job with a company that pays you more, but ends up charging you more for health care premiums, health insurance premiums, your paycheck might actually be less. It really behooves you, particularly if you have multiple offers, to really dig down and see what else the employer is offering other than your weekly or bi-weekly paycheck. Do they have a 401(k) match? What kind of health insurance do they provide? If it's a high-deductible plan or that's an option, do they match contributions to a health savings account?

Sandy: These are all things that really could affect your bottom line, perhaps even more than your pay. When you think about your 401(k) plan, that's something that you're going to have forever. Someone from Fidelity investments was in the office a couple of years ago. She was in charge of employee benefits. She said she had been to some hip companies down in Austin, startups that have ping-pong tables, and beer in the fridge-

Sandy: That's right, because you are going to take that 401(k) plan with you when you go. If the company does provide a match, that's money. That is money in your pocket, so you should look at that as pay, and not just as some kind of extra perk. It's money that... and particularly when you're young, the more you put into your 401(k) plan, the more time you have for it to grow, so it's really important to start that up.

Sandy: That's right. That's becoming more and more of a perk with companies. I wouldn't recommend at your first job interview to say, "How much vacation do I get?" That's kind of a bad call. But it is worth looking into as you get close to negotiating an offer, because companies in an effort to attract young people or talented people, they're aware that people are keyed into a quality of life. That may include more options to telecommute, so as you said, you're not spending as much time on the road, more flexible hours. I read an article just this morning about a company that basically doesn't have any hours at all. It just says your job is getting your work done, and however many hours that takes, that's how many hours you have to work. I think there is a trend away from having to be in your office from nine to five that's very appealing to a lot of people.

Sandy: The other thing that some companies are doing, instead of saying you have X number of vacation days, X number of sick days, they just give you a certain number of days to use however you want. That may appeal to you; it may not. But it's something to establish before you start, because this is the kind of thing that really will affect your experience, your quality of life, and how much you like that job.

Ryan: When it comes to the culture of a company, it absolutely pays to ask. If it's unlimited vacation, but no one takes it, and it's like you're an office pariah if you take your vacation, it's worth getting on the phone... especially if you have multiple offers... talk to some of the people at these companies. Sometimes you'll get a chance to do that when you're interviewing. You'll interview with 10 different people, and they'll say, "Do you have any questions for me?" You'll say, "Yeah. What's it like to work here?" Have some of these questions in mind, because like we said, pay is one thing, but working at an organization that has a culture that you're going to feel comfortable and supported is equally important.

David: It requires really, in a way, almost more shopping around, or rather it's that there's more variability, because car renting is not quite the same commodity as an airline ticket. A lot of it depends on the state in which you rent your car, because of whatever insurance is going on in the state, and then it depends on location. Specifically, are you renting at an airport or some other location?

David: Yeah. There are schemes people do. They'll grab an Uber or a taxi, and go to an off-airport location to rent at a lower rate. However, it's not always the case. The reason being that because airports are a high volume location, they can have good competition for rates. For example, an airport might actually be cheaper than some downtown location that has to pay really expensive garage rates to house a handful of cars.

David: Essentially, it does a little prescreen on you. It says, what credit cards do you hold? Who do you work for, sometimes, or what programs do you participate in? By that, they mean AAA or are you a Costco member? What other things do they... they want a little picture of you. Then, essentially what they do is they shop you around. It's like another layer on top of the other websites. They shop around to get the best rate for you. I mean, I've only sampled it. It looked promising. As I mentioned, people here like the way it works. That's sort of a metasite to check the other metasites for a rate.

David: Well, many fees, most of the fees you'll see up front, there's not a whole lot of way around them. There are things like the airport recovery fee. This goes back to why renting from an airport can often be more expensive. They can be the rental agency trying to recoup the cost of registering their car in the state. Essentially, they tack these on as separate lines because then they could say, "Well, we've just got to cover what it costs to keep the car in the state," and you're on the hook for them, so not a whole lot of wiggle room with those.

David: Your problem, not mine. Now, to the cards, many cards do provide coverage for essentially the kind of losses that would be covered by the CDW or LDW, but most of them do it as a secondary coverage, which means that the rental car company is first going to come after your car insurance and you, so you're going to have to pay out-of-pocket and duke it out with your own car insurance and credit card person to get it all sorted out. Some of the exceptions are American Express offers a program... I think it's supplemental to the card.

David: There's also loss of use. There's also diminished value, which is the concept that a car with any damage is never as good as it was, no matter how it was fixed. The fundamental thing to remember is this, any kind of damage to a car is messy. Damage to a rental car is really messy, because it doesn't matter who is at fault, at least at first. For these costs, it doesn't matter who is at... You could be sitting at a traffic light and get rear-ended by a city trash truck. The rental company, they're like, "Well, that car is a mess now, and it's going to be out of service. We can't make money on that car." Part of the cost that they're going to try to recover include what it cost, or what the rack rate to rent that car is per day that it's sitting there or being repaired, possibly diminished value, and, of course, the actual cost of fixing the car. Now, in this scenario that I just mentioned, maybe ultimately the person at fault-

David: I have sort of... generally speaking, I like to gamble, but increasingly I find myself ponying up for it. I don't have one of the fancy cards that will provide it, so I sometimes look at the situation. If it's, "Oh, I'm just going to have this car for two days in New Hampshire, and it's going to sit in a parking lot for most of the time," I'll take my chances. If I'm renting a car in another country or Los Angeles, I'm like, "Nah."

David: Right. You get hit by a trash truck... but if you are gambling... and maybe even if you're not, just to avoid any kind of headache... so usually there's a little process where you have to check out the car before you leave the lot. I actually had this happen to me on the New Hampshire rental I just mentioned. It was late at night at a small airport. There was only one person working. I got out to the car, which once I'm sort of given the key, released the car, got to the car, looked at it, and there was a scratch on the bumper through the paint.

David: That was the sort of thing that I would have normally been like, "I'm going to flag this, just in case." I figured I would be doing that when I drove out of the garage, and that there would be... some airports you fill out a little form, hand them your driver's license, make sure you are actually the person who is supposed to have that car... poof, I was off into the night. Clearly, the rental car people had taken... how many people are they going to keep on duty for... One of the ways to solve that, or what I should have done, is to take photos. If you see anything... and be conservative, because even if the person at the lot is like, "Ah, don't worry about it," that's just their say-so-

Ryan: Before we go, we wanted to play a quick game of financial Jeopardy. Now, as loyal listeners know, I recently appeared on Jeopardy. As such, I was also asked to write an investing-related quiz for Kiplinger.com, which we'll put in the show notes, with all of the trickiest investing questions that have appeared on the show through the years. For this, I used the J! Archive, which is the fan-sourced Jeopardy question-and-answer archive. I found, when searching through the archive that only once in the show's history has personal finance appeared as a category. It was from 1986, November 19, 1986. The Double Jeopardy round in which it appeared at the time, the clue values were $200, $400, $600, $800, and $1,000, as Alex Trebek says. I'm going to give you guys a chance. Sandy and I were just going to do this together, but it really takes all of the suspense out of it if there is no other competition, so, David, thank you for sticking around.

Ryan: Yes. Good save. You have to answer in the form of a question. Yes, zero coupon bonds. What is the point of a bond that pays no interest? Well, you still get the face value of the bond when it reaches maturity, so investors buy zero coupon bonds at a deep discount to their face value. Once the bonds reach maturity, you can turn a profit. I know Alex doesn't usually explain the answers, but, you know.

Ryan: What is yield is exactly right. See how hard it is? Even on a podcast, imagine being under the lights. So, yes, yield is the income you're getting paid on an investment divided into the cost of that investment. If a stock yields 4%, that means the annual income, the total of the dividends are going to get paid, divided into the price of the stock is 4%. Serendipitously, in our latest issue of the magazine, the June 2019 issue on newsstands soon, we have 33 ways to get higher yields on the cover.

Ryan: Yes, indeed. T-bills are short-term treasuries. You may remember, once again if you're a loyal listener, that we talked about the rate on the three-month T-bill in our discussion of the yield curve. Interest rates on short-term debt are affected by monetary policies set out by the Federal Reserve, so the rate on your T-bill is directly related to the Fed funds rate. Sandy, the last clue belongs to you, and it is what the letters IRA stand for. Sandy.

Ryan: ... when this came out. The Roth came out in 1997. We talked about both kinds of IRAs on the show before, but on an upcoming show we will have a segment on why you need a Roth IRA, so keep an eye out for that. I think that math-wise, David came out on top by just a little bit there, but Sandy, a valiant comeback. Well done. That's it for this episode of Your Money's Worth. For show notes and more great Kiplinger content on the topics we discussed on today's show, visit kiplinger.com/links/podcasts. You can stay connected with us on Twitter, on Facebook or by emailing us at podcast@kiplinger.com. If you like the show, please remember to rate, review, and subscribe to Your Money's Worth wherever you get your podcasts. Thanks for listening.

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Block joined Kiplinger in June 2012 from USA Today, where she was a reporter and personal finance columnist for more than 15 years. Prior to that, she worked for the Akron Beacon-Journal and Dow Jones Newswires. In 1993, she was a Knight-Bagehot fellow in economics and business journalism at the Columbia University Graduate School of Journalism. She has a BA in communications from Bethany College in Bethany, W.Va.