An Authorization Hold, also known as a pre-authorization, is a temporary hold placed on a specific amount of funds in a customer’s account during a transaction. This process typically occurs when a cardholder makes a purchase but the final amount charged is not yet determined at the time of the authorization. For instance, this is common in hotel bookings or car rentals, where the final charges may include additional fees or deposits.
In this process, the merchant requests authorization from the cardholder’s bank or credit card issuer to ensure sufficient funds are available. The bank then reserves the specified amount, reducing the cardholder’s available balance. Although the funds are not immediately withdrawn, they are held until the final transaction is completed or the hold period expires.
Authorization Holds are relevant for both consumers and businesses as they help prevent overdrafts while ensuring that funds are available for the merchant. Typically, these holds can last anywhere from a few hours to several days, depending on the merchant’s policy and the type of transaction. Once finalized, the hold is released, and the actual transaction amount is processed.
