When you purchase with a credit card, the merchant usually requests authorization from the credit card issuer. This authorization is used for a hold on the funds equivalent to the purchase amount, plus any estimated taxes and fees.
According to the issuer and the type of purchase, authorizations can last from a few hours to 30 days. If you don't complete the transaction within that time frame, the hold expires, and the funds are released back to your account.
Authorizations are common for hotel stays, car rentals, and other transactions where the final amount is unknown at the purchase time. So if you're wondering how long credit card authorization lasts, it could be anywhere from a few hours to a month.
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When a transaction is processed, the first step is authorization. Payment processors receive cardholder information and communicate with issuing banks to verify the validity of the card and the transaction amount.
Before processing a future transaction, merchants place an authorization hold on a customer's account, also known as preauthorization. Once the transaction is complete, the hold is lifted, and the total amount is charged.
Buyers don’t usually notice a hold on their card unless they max out the card. Holds don’t appear in the credit statement until the purchase is final but is deducted from the credit limit.
Merchants use authorization holds for purchases when the final amount is unknown. They also use it to prevent fraud, especially when selling high-ticket items. Cardholders may not immediately realize that fraudsters are using their cards.
Merchants protect themselves and the buyer by putting an authorized hold on transactions so the cardholder can review them before they're completed and shipped. During the authorization window, the cardholder can cancel the transaction, and the merchant can simply release the hold.
This process also works for buyer’s remorse when customers discover they don’t want the purchase and call to return or cancel the item.
The length of a credit card authorization depends on the transaction’s nature. Merchants can discover the length of authorization by checking their Merchant Classification Code. When transactions aren’t finalized during the authorization period, the hold expires, and you need to reset the process.
Merchants are charged a “misuse fee” for letting a hold expire. Recurring transactions have a shorter time limit, and the hold can be as temporary as one day. On the other hand, merchants in the hospitality, rental, and vehicle industries can place a hold for as long as 31 days.
For cardholders, if you notice a merchant making unnecessary holds on your card, you can file a chargeback. Some common misuse issues include charges exceeding the authorized hold amount and failure to follow authorization rules.
As mentioned, cardholders don’t notice a hold if the amount is the same as their purchase. However, if the amount is higher than the purchase amount, they’ll notice it, especially if they have a lower credit limit. The hold can cause misunderstandings and customer dissatisfaction. Only hold the amount closest to the actual purchase value as much as possible.
Merchants can cancel a preauthorization hold. by going to their payment dashboard and removing it. Cardholders can call their banks to dispute the hold, and the bank will contact the merchant to have it removed. This process takes three days to complete.
If you know the merchant, just call them to request that the hold be canceled. The merchant should oblige, especially if the product or service will no longer be delivered or served.
Authorization holds have their benefits and drawbacks. As illustrated above, they protect merchants from fraudulent transactions and chargebacks. However, customers can view them as an inconvenience, and staff can see them as an added complication.
An authorization hold also doesn’t guarantee that all risks will be removed. It’s still possible for a buyer not to have enough funds to pay for the hold leaving the merchant to cover the rest of the bill.
The benefits outweigh the drawbacks, and merchants are still encouraged to use authorization holds. Just ensure staff is adequately trained, authorization rules are followed, and customers’ expectations are set.
There are countless ways to maximize using credit cards and card processors for your business. Check out our blogs at Processing Card for more tips on fully utilizing the advantages of card payments.
Florence Carpenter is passionate about ensuring that the process of opening merchant accounts is as straightforward as possible. She graduated from the University of Michigan with a bachelor’s degree in Marketing.
