Hold (Authorization Hold)

An authorization hold is a common banking practice used to verify that a cardholder has sufficient funds available and to earmark those funds for a future transaction. This is particularly useful in situations where the final transaction total is not immediately known, such as during a hotel stay, a car rental, or at a gas station.

When a cardholder initiates a transaction in such scenarios, the merchant places a temporary hold on a portion of the cardholder's credit limit or debit balance. This amount reflects an estimate of the final bill. For example, in the case of a hotel, the hold might include the cost of the room per night, estimated charges for potential room service, and taxes.

This hold acts as a guarantee for the amount, ensuring the merchant that they can collect the estimated payment once the service is completed. The actual transaction amount is only finalized and charged to the card account at the point of service completion, such as at hotel checkout. At this time, the hold is released, and the actual amount is deducted from the cardholder's account. If the final amount is less than the hold, the difference is made available again in the cardholder's credit line or bank balance.

Authorization holds are crucial for both merchants and consumers as they ensure merchants are not left unpaid for the services provided and consumers are not overcharged beyond the actual cost of services rendered.