Authorization Hold
Authorization Hold refers to a temporary hold placed by a merchant or financial institution on a specific amount of funds in your credit or debit account to ensure payment for a pending transaction. This is evaluated within Credit Card Mechanics.
Plain-Language Meaning
An authorization hold is when a certain amount of money is set aside on your card by a merchant before the final transaction is completed, making those funds temporarily unavailable for other purchases.
Practical Example
If you check into a hotel, the front desk may place an authorization hold on your credit card for the estimated cost of your stay plus incidentals, which means you cannot use that portion of your credit limit until the hold is released.
What It Does Not Mean
An authorization hold is not a completed charge or payment; it does not mean the money has left your account, but rather that it is reserved and cannot be spent elsewhere until the transaction is finalized or the hold is removed.
How the System Uses It
The system uses authorization holds to confirm that sufficient funds or credit are available before a transaction is finalized. This process helps prevent declined payments and protects merchants against insufficient funds, while also temporarily reducing the available balance or credit limit until the transaction is settled or the hold expires.
Common Misconceptions
- “An authorization hold is a permanent charge.” Authorization holds are temporary and typically released once the transaction is completed or canceled.
- “Authorization holds immediately deduct money from your account.” The funds are only reserved, not withdrawn, until the transaction is finalized.
- “All merchants use the same hold amount.” The amount and duration of authorization holds can vary by merchant and transaction type.
Related Pages
Related Glossary Terms
FAQ
- How long does an authorization hold last? The duration of an authorization hold depends on the merchant and your card issuer, but it typically lasts from a few hours up to several days before being released or converted into a finalized charge.
- Can an authorization hold affect my available credit? Yes, an authorization hold temporarily reduces your available credit or funds until the hold is released or the transaction is completed.