Let's talk about why gas stations charge more for credit cards (2024)

FAQs

Let's talk about why gas stations charge more for credit cards? ›

This is because the gas station owners pay an interchange fee to the payment networks. They often pass this fee on to the consumer to recoup that additional cost. An interchange fee is part of every credit card transaction that a merchant processes.

But you may not realize you're spending more because of the payment method you use. Gas stations are legally able to charge extra for using a credit card. A surcharge passed on to the customer allows them to recoup the fees that the Visa and Mastercard payment networks charge them for transactions.

Since pumping gas is an open-end purchase, gas stations will typically pre-authorize your payment card for a larger amount to ensure that your card has enough funds to cover the amount of gas you'll leave with.

Gasoline taxes account for a significant portion of the price you pay at the pump. All retailers must charge the 18.4% Federal gas tax and other state taxes and fees. In 2022, the median average of combined taxes for gasoline was averaged at 57.1 cents/gallon.

The authorization limits are a compromise between liability for the merchant and the average consumer gas purchase. Most car drivers will never run into the limit. Only truckers and RV drivers have to deal with it regularly, except when gas prices rise.

In 1985, California passed a law (Civil Code section 1748.1) that prohibited merchants from adding a surcharge (an extra fee) when customers pay by credit card instead of cash.

Merchants may charge a convenience fee to discourage the use of credit cards, which are often more expensive to accept than other payment methods. While the rewards you earn from a credit card can help offset some of the cost of the fee, the charge is often more than what you'd earn in cash back, points or miles.

If you use cash, you eliminate the credit card surcharge and you end up paying the lower advertised price. Some gas stations are actually required to put the credit card price as the advertised price on their signs. Some also put “Cash” next to the price on the signs to let consumers know that it's the cash price.

When a consumer uses a credit or debit card to purchase gas, there is an authorization hold placed on the card. An authorization hold is the practice of authorizing electronic transactions of a specified amount (usually more than the expected transaction amount) and holding this balance until the transaction clears.

Western and Pacific states face the most costly gas in the nation, as the five states with the highest prices are California, Hawaii ($4.79), Washington ($4.57), Oregon ($4.33) and Nevada ($4.32).

Can you overcharge a credit card for gas? ›

If you prepay too much for gas with a credit card, you will only be charged for the purchase amount and the remainder of the prepaid amount will not be charged to your card. The gas pump will stop when you reach the prepaid amount or when the tank is full.

If the debit card is attached to an account that does not have sufficient funds, and if there is no overdraft protection on the card, the transaction will simply be declined and the gas pump will not release any gas.

When you max out your credit card, you are using the entirety of your available credit limit. This leads to a high credit utilisation ratio, which can adversely impact your CIBIL score. Maxing out of credit card triggers adverse impact on CIBIL score.

Convenience fees are legal in all 50 states but must be clearly communicated at the point of sale. Additionally, a convenience fee can only be imposed if there's another preferred form of payment as an option.

A credit card surcharge (or cc surcharge) is a fee enforced by the merchant to compensate for some of the cost of payment processing. This fee can only apply to credit cards—and never debit, even when a debit card is run like a credit. As for calculating the fee, surcharges are predominantly percentage-based.

It is normally a small percentage, usually around 1% to 2.5% of the fuel purchase amount or a fixed amount added to the transaction. This surcharge compensates the Credit Card company for the processing costs associated with fuel transactions at the pump.

A gas hold is a gas station payment processing method that places an authorization hold on your account for an amount ranging from $1 to $125, and leaves it there until your actual transaction clears.