What is a Credit Card Preauthorization Charge?

A preauthorization charge is a temporary hold on a specific amount of funds available on a credit card. It’s a common practice used by businesses to ensure that the card is valid and has enough funds to cover a future transaction.

• The preauthorization amount is not actually debited from the account, but rather set aside by the card issuer.
• It's often used in situations where the final transaction amount is unknown, such as hotel stays or gas station purchases.

How Does a Credit Card Preauthorization Work?

The process of preauthorization begins when a business requests a verification of available credit from the card issuer. The card issuer then places a hold on the card for the requested amount. This hold affects the available credit limit on the credit card, but it doesn't result in an immediate charge to the account.

• Once the final transaction amount is determined, the business completes the transaction.
• The preauthorization hold is then replaced by the actual charge, deducting funds from the account.
• If the transaction is canceled or the final amount is less than the preauthorized amount, the hold is released, restoring the available credit or funds.

Why Do Businesses Use Credit Card Preauthorization?

Preauthorizations serve as a safety net for both businesses and customers. They help ensure that funds are available for transactions where the final amount is uncertain, such as:

• Hotel stays, where guest expenses can fluctuate.
• Car rentals, where potential damage charges are unknown.
• Gas station purchases, where the final fuel cost depends on the amount used.

Advantages of Using Credit Card Preauthorization

Preauthorizations offer numerous advantages for businesses. They:

• Protect against unexpected charges and reduce the risk of chargebacks.
• Streamline financial planning and forecasting by ensuring funds are available.
• Improve customer transparency and reduce payment uncertainties.
• Simplify operations by making it easier to manage reservations and bookings.

Credit Card Preauthorization vs. Debit Card Preauthorization

While preauthorizations work similarly for both credit and debit cards, there are key differences:

Feature	Credit Card	Debit Card
Funds Held	Available credit limit	Account balance
Impact on Account	Reduces available credit	Reduces account balance

How Long Does a Credit Card Preauthorization Last?

The duration of a preauthorization hold can vary depending on the card issuer's policies and the type of transaction. Generally, preauthorizations last for 5-7 days, but some banks may hold funds for up to 14 days. In certain cases, such as hotel or car rental bookings, the hold can last for a longer period, potentially up to 30 days.

If the final transaction is processed before the hold period expires, the preauthorization hold is removed and replaced by the actual charge. If the transaction doesn't go through, or if the actual charge is less than the preauthorized amount, the hold is released, and the unused funds become available again in the cardholder's account.

Types of Businesses that Typically Use Credit Card Preauthorization

Preauthorization charges are commonly used by businesses in industries where the final transaction amount is uncertain or there’s a delay between service initiation and completion. These include:

• Hotels and accommodations: To secure potential incidental charges or damages.
• Car rental services: To cover rental fees, insurance, and security deposits.
• Gas stations: To verify funds for fuel purchases at pay-at-the-pump stations.
• Restaurants: To confirm payment methods for tab transactions.
• Retail stores with high-value items: To ensure funds are available before processing expensive purchases.
• Online services and subscriptions: To verify payment methods for trial periods or ongoing subscriptions.
• Travel agencies and airlines: To hold funds for ticket purchases and potential change or cancellation fees.
• Rental services: To cover charges for equipment, furniture, or other rentals.

Managing Credit Card Preauthorizations: Best Practices for Businesses

To manage preauthorization charges effectively and ensure a smooth payment experience for both businesses and customers, consider these best practices:

• Clearly communicate preauthorization policies to customers.
• Provide accurate information about the preauthorization amount and duration.
• Use preauthorization tools and systems designed for efficient transaction management.
• Minimize the preauthorization hold period to avoid inconveniencing customers.
• Release holds promptly after completing the transaction or when the service is no longer needed.