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Published January 31, 2024
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How Does Credit Card Pre-Authorisation Work?

Pending transactions can’t be avoided if you use a credit card for payments. They aren’t a problem if you know how they work and plan for what’s coming out of your account.

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If you want to use a credit card for a transaction where the final amount is not known upfront — such as with recurring payments, hotel stays, care hires, or when refuelling at petrol stations — pre-authorisation is required. 

What is credit card pre-authorisation? 

Credit card pre-authorisation (also ‘pre-auth’ or ‘authorised hold’) is a process that places a temporary hold against a credit card. It’s a way for a merchant to ask your credit card issuer to block off a specific amount of money that can be processed (or cancelled) after the transaction is settled. Typically, holds are released within 10 business days, but this varies.

Pre-authorisation differs from a charge because money isn’t debited from your balance. However, pre-authorisation can’t be approved unless you have an available credit balance. Also, any funds reserved by the hold will affect your spending limit. For example, if you pre-authorise $300 at a hotel, your card’s credit limit will be reduced by $300 until the hold is released. 

Think of these pre-authorised holds as security deposits for merchants. It gives them time to check the card’s validity, prevent fraud and reserve the funds. 

Once the merchant knows how much the transaction will cost — typically after the goods or services are delivered — they’ll process the final amount. At this point, the hold is released, the account is billed, the charge appears on your credit card statement, and your credit limit is adjusted accordingly.

When are pre-authorisations used?  

Merchants often use pre-authorisations when transactions have a total cost that is uncertain or variable at the time of initiation, such as:

  • Recurring monthly payments
  • Travel and rental industries (such as in the hotel check-in process)
  • Uber
  • Fine dining restaurants
  • Online marketplaces
  • Petrol pumps. 

For example, Uber issues authorisation holds to all new customers to check they’re using a valid credit card. You might see a small ‘pending’ charge of $1 or $2 in your transaction list, but it’s not actually charged to you and will be released by your bank in a few days. 

Even if you pay in cash, a merchant might still ask for your credit card for the security deposit. Pre-authorisations usually aren’t a problem if you have available credit. However, consumers find credit holds frustrating when they plan to use that available credit. 

» MORE: How to get a credit card limit increase

What is a credit card pre-authorisation form? 

A credit card authorisation form is the agreement (physical or online link) supplied by the merchant that approves the hold or transaction. These agreements are used for one-off or recurring payments. 

You fill out the form, the merchant inputs the amount into the Electronic Funds Transfer at the Point Of Sale (EFTPOS) machine, and you swipe or insert the credit card and enter your PIN. 

Most forms used in pre-authorisation or reserves require the following information: 

A pre-authorisation can’t be made without you, as you’ll need to enter your PIN or sign it. Don’t sign an agreement that doesn’t specify the pre-authorisation amount. Take your time to check the document instead of quickly skimming over it. Hotels tend to charge per night, not per stay, which can add up to hundreds or thousands of dollars. 

If you’re unsure about a company’s policy, contact them before you book. After your stay, order or service, the merchant and your bank are the two points of contact to follow up on the status of a credit card pre-authorisation. 

Filling out a credit card authorisation form 

Pre-authorisation agreements differ between merchants and service providers, but most will follow the same format. Pay attention to the terms and conditions, the hold amount, how long it usually takes to release funds, and reasons funds might not be returned to you. If it’s a recurring payment, check the terms for the monthly debit. 

In most cases, credit holds are a simple, straightforward process. If no issues arise, you should see the hold released within a couple of weeks without you having to do anything. 

Alternatives to pre-authorised credit card holds  

Holds can only be placed on credit cards, so paying with your debit card, a bank transfer or with cash are ways to bypass a pre-authorisation.

Check with the provider about any alternative forms of payment. It might also depend on the type of credit card you have. See what they accept and their recommended payment options. If your goal is to improve your cash flow and money management, use a debit card. If your focus is on building your rewards points, use your credit card and plan for pre-authorisations. 

Frequently asked questions about credit card pre-authorisation

Are credit card authorisation forms safe? 

Credit card authorisations are safe. Merchants don’t take your credit card — they place a hold on funds equal to the value of the upcoming charge or security deposit. Credit cards also have greater consumer protections when compared with debit cards, and banks actively notify customers regarding unfamiliar charges. 

Are credit card authorisation forms legal? 

Credit card authorisation forms are a standard process for hotels, vehicle rentals and recurring payments, and for securing upcoming bookings. While pre-authorisations can be frustrating and often unexpected, it’s a necessary process to protect against fraud and customers who don’t pay. 

Are pre-authorisations the same as pending charges?

A hold or pre-authorisation isn’t the same as a pending charge, which is a payment that’s complete, but not yet processed by the merchant. Pending transactions take three to five days to be fully processed and reflected in your account balance. Holds are released, and the charge disappears off the transaction list, usually within 10 business days.

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