Adverts in the national press were this week promising "unbeatable" deals on car hire this Christmas. The company behind the ads, a new name called 118 Car Hire, boasts that it has a "huge range of cars available," with "affordable rates guaranteed," plus free delivery and collection.

But is this deal too good to be true?

Car hire is an area where consumers need to tread carefully. In the run-up to Christmas last year, a sizeable number of people were duped by a firm trading as "Rentmac," which had advertised in the Guardian and other publications, promising quality vehicles at "Xmas special" bargain rates. Many people handed over hundreds of pounds for cars that never materialised.

This week, the trade body for the UK car rental industry warned the public to "take extra care" when confronted with cheap deals for Christmas car hire on the internet, or in the press.

The British Vehicle Rental and Leasing Association (BVRLA) says it believes that "similar scams are being planned this year, and [it] has already made contact with police and trading standards over one potential threat".

The BVRLA declined to give further details, but said people need to be wary and take some simple steps to ensure they are dealing with a reputable company.

Guardian Money has not received any complaints about 118 Car Hire, but its ads – which have appeared in the Times, Metro and the London Evening Standard during the last few days – caught our eye because the deals look very attractive. It is offering a VW Passat 2.0 TDI for £32 a day, which is around half the price one might expect to pay normally, while the website (118carhire.net) lists a number of "sensational" two-week Christmas deals (19 December to 2 January), starting at £224 for a VW Polo or Vauxhall Corsa 1.2.

Intrigued, and not being familiar with the company, we decided to look under the bonnet. A Companies House search revealed that the firm came into being in September 2010, and changed its name from Abbeyworth just over a month ago.

We decided to test the online booking system. Unlike the majority of car hire companies, the 118 website didn't ask for the driver's age. Many car hire firms either won't hire out vehicles to drivers aged under 25, or will load the price. We selected a VW Polo and were quoted £60 to hire it between 22 December and 25 December (ie, Christmas Day). It was to be sent to the reporter's home and collected from there. After entering our details, a message came up saying that the company would be in touch shortly to confirm our booking. We did not receive the instant email confirmation typically sent after an online purchase. The company did ring back the next morning and left a message, but we were unable to get through on its 0845 number.

The address given on its website, and at Companies House, is 120 Bath Road, Middlesex – a short bus ride from Heathrow airport. As 118 Car Hire states that customers can pick up and drop off vehicles at Bath Road, we decided to pay them a visit. That address turned out to be a five-storey office block, called Capital Place, with a small car park. A large sign outside gave a web address, which clicked through to a company called Avanta which explained that 120 Bath Road was a "serviced office centre" offering "the perfect location for ... businesses needing London office space". The address also offers "virtual offices" costing from £60 a month.

The company's website says it offers 21 different models, but when we arrived, we could not see any evidence of a fleet of vehicles.

Posing as a customer arriving to pick up a car, we were told by a receptionist that there was no one in from 118 Car Hire today. When we asked when they were last in, the receptionist told us: "They were here at the start of the week." When we asked about the firm's fleet of cars, she said the company was allowed to park its own vehicles there, but not hire cars for clients.

According to Companies House, the director is Roger Doyle, whose address was given as Onslow Gardens in London's South Kensington. We visited the address, which was a property split into several flats, and spoke to two residents who had not heard of Doyle.

The most recent adverts for 118 Car Hire appeared in the Times and the free Metro newspaper on Tuesday. A source at Associated Newspapers, publisher of Metro, told Money it was "investigating whether this advertiser is bogus or not".

We have been unable to get through on its 0845 number, as it was constantly engaged. We emailed on Wednesday, explained we were writing an article and posed several questions. It emailed us the next day, saying: "Thank you for the offer for advertising but we have furfilled [sic] all our advertising needs for 2011, We will be intouch [sic] in the new year to arrange our new campaign. Again many thanks and have a good christmas and new year! Kind Regards Peter Nolan 118carhire ltd."

The BVRLA this week suggested some tips for customers looking for "safe and hassle-free" car or van rental:

• Never hand over cash or accept a demand to pay by bank transfer. Most reputable rental firms will only want to accept credit/debit card payment.

• Make sure the company is operating from a bona fide commercial premises, not a PO box or virtual office, no matter how prestigious the location sounds.

• Make sure it actually owns and operates the cars it is offering.

• If the price or service being offered seems too good to be true, it probably is, and you may well end up out of pocket and disappointed!"

• Only use a BVRLA member. "Seeing our logo is a sign that you are dealing with a reputable company that has been vetted and operates to a professional code of conduct."