Authorization Holds

If you use a prepaid debit card to buy gas, rent a car or get a hotel room, you need to know what an “authorization hold” is.

Authorization holds are used by many merchants (and not just when you use a prepaid debit card — authorization holds are used for normal credit and debit cards). Authorization holds are commonly used in the authorization of certain types of purchases (particularly in “pay at the pump” gas purchases, car rentals, and hotel and airline booking) so that the merchant can be sure that you have enough funds in your account to complete the transaction.

Here’s how an authorization hold works: When you use a debit card or credit card to purchase certain types of goods or services, the merchant may place an authorization hold for the expected amount of the transaction. The hold stays on the account until the transaction is complete and clears. The hold falls of anywhere from one to five days after the transaction date.

Here’s an example. If you swipe your prepaid debit card at a gas pump (in a “pay at the pump” transaction), a transaction hold for an amount (such as $100) is placed on your account when you swipe the card. The hold basically reserves $100 for the gas station to make sure they get paid when you complete the pumping. This way, the gas station is ensured that they get paid at least $100, since the total transaction amount won’t be known until after you finish pumping the gas (after you’ve already swiped the card).

If it turns out that you only pumped $25 worth of gas, the $100 hold stays in place until it “falls off” (one to five days later). During the time the hold is in place, you won’t have access to the $75 of extra hold (although it is still your money, you just don’t have access to it for a few days).

If you tend to cut it close with your budgeting each week, make sure you factor in any potential “authorization holds” so that you have access to your money when you need it. (Some people go so far as to not buy gas when their balance is getting low).

Filed under: Glossary
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