A pre-authorization is a temporary hold of a specific amount of the available balance on a credit or debit card until the merchant performs a settlement of which the actual amount charged shall be posted to the cardholder’s account.
The money are unavailable to the customer throughout the hold period; they will not be able to withdraw them from an ATM or spend them elsewhere. Even though the funds are unavailable in their account, no money has been debited in the pre-auth; it is simply reserved. When it’s time to complete a transaction, such as checking out of a hotel, the funds on hold can be “captured,” or transformed into a charge.
When are pre-authorizations used?
Pre-authorized payments for hotels enable funds to be held either at the booking stage, or during check in. By placing a hold on extra funds, hotel managers can rest assured that a guest cannot leave without paying.
By placing a hold on funds when the car is rented, agencies can be sure that the car will be returned in good shape. If there is damage to the car, the hold will cover these charges.
For those lending customers expensive pieces of equipment, such as a bicycle or surfboard, the funds protect them from being stuck with the costs associated with loss, damage, or theft. In these cases, the hold is also referred to as a “security deposit.”