Paying a deposit to hire a car? Beware – you could lose out from changes to exchange rates

We've found that at some locations the companies – including Enterprise and Hertz – actually deduct a deposit in local currency from the hirer's credit card and then refund it, rather than simply ring-fencing the amount.

This means you could end up losing out because of changes to exchange rates, though it's possible to gain too. MSE Nick, who was charged a refundable deposit of €1,350 when hiring a car in Malta at the end of April, ended up more than £30 down when his deposit was returned.

Following the Brexit vote, we've seen wider currency fluctuations than normal, meaning the possible impact is bigger – though anyone who's affected and has seen the pound weaken during their rental period will actually be refunded more than they'd had deducted as a result.

None of the car hire firms we spoke to that deduct the deposit from your card said they would refund the difference if changes to the currency rate mean you lose out. For full help on cutting costs when renting a car, see our Cheap Car Hire guide.

Why do I need to pay a deposit?

If you don't take a car hire firm's extra insurance cover to reduce the excess (cover which is usually a lot more expensive than buying from a third party beforehand), it'll often ask for a €600+ deposit on your credit card in case you damage the car.

Usually, this deposit is just 'ring-fenced', which means that amount is held on your card so you cannot use it – eg, if you had a £1,000 credit limit and £400 was ring-fenced, you'd only have a further £600 to spend.

Yet we've found some firms in certain locations don't just ring-fence the deposit but actually take it from your card – leaving you at the mercy of currency fluctuations while they have it.

Who does this?

Car hire companies' policies vary significantly by location and different franchises, but four major firms told us they will actually take the deposit off your card at certain locations, and we know it's also happened at at least one other firm.

As well as speaking to companies' head offices, we also called round branches in Corfu, Malaga, Mallorca, Malta, Nice and Pisa to get an idea of where this is happening in practice. Here's where we found it's happening:

• Alamo – A spokesperson told us it usually takes the deposit in the local currency and then refunds it, though it varies by branch.

• Enterprise – A spokesperson told us Enterprise also does this. We found Enterprise's Malaga, Mallorca and Nice airport offices are among those to take the deposit.

• Hertz – A spokesperson said its general policy across Europe is that the deposit is ring-fenced, but some franchises have a different policy. Its Mallorca airport office told us it'll take the deposit rather than ring-fencing it if you hire a car for more than 10 days.

• National – A spokesperson told us National deducts rather than ring-fences the deposit.

• Goldcar – A spokesperson told us it ISN'T its policy to deduct the deposit, and it always ring-fences it. However, MSE Nick found he did have a deposit deducted at Goldcar's Malta office (see below). Goldcar says this was a "mistake", though when we called its customer service line the rep told us he'd heard of it happening to other customers at the Malta branch too.

All local offices which told us they do deduct then refund the deposit told us they wouldn't refund any difference based on changes in the exchange rate.

Following the Brexit vote, we've seen wider currency fluctuations than normal

'I lost more than £30 due to the exchange rate'

MSE Nick had a deposit taken from his credit card when he hired a car in Malta at the end of April and lost out as a result.

He said: "I booked my car hire online using a comparison website. After waiting in the queue at Goldcar's main Malta Airport office for over an hour, I was told a deposit of €1,350 would be due as I had my own excess insurance with a third party.

"I asked and was told my card would only be charged if there was a problem with the car when I returned it. However when I got home I checked my online banking and saw a transaction of £1,061.

"I immediately called my bank, which told me to contact Goldcar to chase for a refund. When I did, their response wasn't clear. At first it sounded like they were saying it shouldn't have happened, but then they also said it can take 30 days to be refunded. I was told to submit a written report, which I did.

"I heard nothing back for over three weeks, by which time I'd already been refunded (30 days after taking out the car). But as the pound had strengthened, the €1,350 refund amounted to £1,028 – £33 less than what I originally paid."

In the end MSE Nick spoke to his bank and explained what had happened, and eventually convinced them to refund the difference on the grounds that he hadn't agreed to having the money taken – but it's by no means guaranteed that others can get their money back this way.

He added: "I also emailed Goldcar back saying I'd lost out on the rate. To this day they haven't replied."

Speaking about MSE Nick's situation, a spokesperson for Goldcar said: "We understand that it was a mistake or a misunderstanding because we always take the option of blocking the deposit if the card is a credit card."

How to avoid being caught out by exchange rate fluctuations

To make sure you're not caught out, it's well worth checking whether your card will actually be charged when you leave a deposit. To do this:

• Carefully read the T&Cs before booking a car. If unsure, clarify what they mean via online chat, email or helpline, and that they apply to the country where you're booking. (If you're booking via comparison site, ensure you read the car hire company's terms and conditions.) To be doubly sure, you could contact the local office you'll be hiring from – see our Cheap International Calls guide.

• Ensure you have a printed copy of the T&Cs with you when picking up the car. Ask staff at the checkout desk to confirm the policy and that the money will not be withdrawn. It might also be worth noting down their name so you have a record of the conversation.

• Finally, check your credit card statements when you return. See if any money was taken, and if so, how much was returned. If the deposit was actually taken remember it can take up to 30 days to be put back on the card. If you did lose out, it's worth talking to your bank to see if it'll refund you the difference, as MSE Nick did.

What if I gain from a change in exchange rates?

If you do, you'll be able to keep it. But of course, exchange rate fluctuations are impossible to predict.

Even if exchange rates stay the same, won't the card firm charge me for deducting and returning the deposit?

This is a very technical point, but it's worth noting that when you get your refund, the exchange rate you get will be ever so slightly worse than the rate you'd get if you were spending on that day, as your card issuer is converting it from the foreign currency back to pounds.

However, this difference typically only amounts to a few pence per £100, and will almost certainly be dwarfed by overall rate fluctuations between the day you spend and the day you're refunded.

What happens if I have to wait for the refund?

Assuming you pay your credit card off IN FULL each month (which you should always do), bear in mind that if the car hire firm does charge you the deposit and doesn't refund it before your direct debit's due, it'll be withdrawn from your bank account. Watch out in case this leads to cash flow problems or bank charges.

If this does happen, whenever you do get the deposit refunded you can contact your credit card company to try to get the funds transferred back into your bank account.

What do the car hire firms say?

A spokesperson for Enterprise Holdings, which includes Alamo, Enterprise and National, says: "Our standard policy is for the deposit to be charged to the card and then refunded upon safe return of the vehicle and closure of the rental contract.

"Deposits are taken in the currency of the country where the car is rented. On completion of the contract the customer is reimbursed the exact amount that was taken. A customer is not compensated if the currency fluctuation works against them, nor does Enterprise seek additional monies back from the customer if it works in their favour."

A Hertz spokesperson says: "Our general policy across Europe is that an authorization is obtained on the customers' credit cards. However some franchisees around the world may have a different policy. We advise our customers to check the information on the companies' websites or contact the customer care [phone number]."

The spokesperson was unable to say if Hertz would usually refund the difference – though as above, its Mallorca office told us it wouldn't.