Do car rental companies allow their car to drive across border to Spain?

It all depends on the rental agency and if any measures for insurance are required. If you are thinking of dropping the car off in Spain, that I would advise against, it will likely require a large drop-off fee. Can't say if the transponders are universal, likely not, but toll roads in Spain could be avoided, there are only a limited few anyway, most expressways are toll free. I do suggest the toll transponder for Portugal.

I believe most rental car agencies allow this but the cost of wrong place return is around 1000 euros. In contrast, the cost of wrong city return in the same country is a small fraction of that. For this reason, it rarely makes sense to rent a car in one country and return it in another. It has been some time since I checked this out-- a couple years ago. But it is easy enough to check for yourself. Go to your favorite rental car outfit and put the wrong city return in a different country and see what the charges are,

Good luck! And if the charges are now less, let us know!

I’ll assume you’re returning the vehicle to Portugal.

The major rental companies should allow cross border between Spain and Portugal without a charge. I know Enterprise allowed it when we rented (in Spain) last year and travelled between the two countries. I doubt a Portugal transponder will work in Spain as there doesn’t seem to be an EZ pass equivalent for Europe. Depending on where you drive in Spain you may not run into any toll roads. The last time I was on a toll road in Spain you could pay with a card or cash. The cash lane will be on the right when looking at the toll booths.

When looking at Google maps most major highway type roads start with the letter A (autovía). If it’s a toll road it will be AP. For example, if heading NW from Madrid there’s the A-6, but at Collado Villalba it turns into the toll road AP-6. It reverts to A-6 at Adanero. The P stand for Peaje (toll). Depending on how much time you have and your route, many toll roads can be avoided by taking the slightly slower back roads.

I’ve rented here in Portugal and driven into Spain. No problem. However, the transponder from Portugal will not work in Spain. One has to stop and manually pay tolls.

If you are returning the car in Lisbon, I would think not a problem...if you are dropping it off in Spain then there will be a fee. In 2014 when we looked at doing this, I think it was 500 euro or more to rent a car in Lisbon and drop it in Barcelona - that was just the drop-off fee, to be added to the rental cost. We ended up taking a bus to Seville and renting a car there (which I also don't recommend, actually - that was a VERY long day). Depending on where you want to go in Spain, might be easier - and cheaper - to fly and use public transportation.

Thank you all for your informative inputs..
yes, I'll be renting and dropping off the car at Lisbon..
How does the transponder fee work when I drop off the car?? - I remember doing this in Norway, and they took 3-4 days to collect all the transponder fees and later got my final CC bill..
Is this how Portugal work as well??
Any recommendation on car rental company in Lisbon?? I was thinking of autoeurope platform to rent the car.. not sure exactly which company though..

Compare zestcarrental.com. I did a lot of research before renting and found that they had the best prices and very high reviews.

For the responder, you pay a small deposit which covers the transponder rental and some tolls. If you go over the deposit, you will automatically be billed later. It took us about a month to get the final charge.