What Is an Authorization Hold and How Does It Work?

An authorization hold represents a temporary reservation of funds on a payment card. This common practice occurs across various transactions and can often lead to confusion for consumers. Understanding these holds helps individuals better manage their finances and anticipate their available balance.

Understanding Authorization Holds

An authorization hold serves as a temporary claim on funds within a customer’s account, ensuring money is available for a future transaction without immediately debiting the account. Its primary purpose is to verify that sufficient funds exist on a payment card at the time a transaction is initiated, guaranteeing payment once the final transaction amount is determined. This temporary hold differs significantly from a completed transaction or a pending charge, as the money is not yet transferred to the merchant. Instead, the held amount is simply made unavailable for other purchases. Merchants utilize these holds to cover potential final costs, such as incidentals, or to protect themselves against chargebacks for services rendered. They also use holds to ensure payment for goods or services that will be finalized at a later time, like an online order shipped days after placement.

How Authorization Holds Work

The process of placing an authorization hold involves a rapid interaction between the merchant, their payment processor, and the card-issuing bank. When a customer presents their payment card, the merchant’s point-of-sale system or online gateway sends a request for authorization through a payment network. This request specifies the amount to be held. The card-issuing bank receives this request and quickly checks the cardholder’s available balance. If the funds are sufficient, the bank approves the authorization request and places a temporary hold on the specified amount within the cardholder’s account. This action makes the funds immediately unavailable for other transactions. This entire process occurs in real-time, within seconds. Once the service or product is delivered, the merchant will then “capture” the authorized funds, completing the transaction and transferring the money. Alternatively, if the transaction is not finalized, the authorization hold will eventually expire, and the held funds will be released back to the cardholder’s available balance.

Common Scenarios and Their Duration

Authorization holds are common in several everyday situations:
Gas stations place a hold for an estimated amount, often $50 to $150, before the actual fuel purchase is known.
Hotels place holds for the estimated room rate plus an additional amount for potential incidentals.
Rental car agencies apply authorization holds to cover the rental cost and a security deposit for potential damages or additional charges.
Restaurants place a hold for the meal cost, which is later adjusted to include a tip when the final charge is processed.
Online purchases or pre-orders involve an initial authorization hold, with the actual charge occurring only when the item ships.

Hold durations vary widely, from a few days to several weeks. Factors influencing this duration include the specific merchant’s policies, the type of transaction, and the individual card-issuing bank’s procedures. The hold is automatically released once the transaction is finalized by the merchant or if a predetermined expiration period passes without the transaction being completed.

Managing Authorization Holds

Consumers can monitor authorization holds by regularly checking their online banking portal or mobile banking application. These platforms display pending transactions and authorized amounts, allowing individuals to track their available balance. Understanding how these holds impact available funds is key, especially when managing credit limits or maintaining low account balances.

If an authorization hold appears incorrect or remains on an account longer than expected, the initial step is to contact the merchant directly. The merchant can provide clarity on the hold’s status or initiate its release if necessary. Providing transaction details like the date and amount can expedite this process. Should the merchant be unable to resolve the issue, the next step involves contacting the card-issuing bank. Banks have specific policies regarding authorization holds and can expedite their release, though they may require verification from the merchant. Communication with both the merchant and the bank helps ensure timely resolution and accurate reflection of available funds.