Pre-Authorization (Pre-Auth) is a transaction that reserves an amount on a customer’s credit card. It’s commonly used in scenarios like hotel bookings or car rentals where a merchant wants to verify that funds are available but the final charge amount might not be known until later.
The pre-authorization confirms the cardholder has sufficient credit to cover the charge, but the funds are not actually taken from the account until the final transaction is processed. It’s a tool used by businesses to minimize the risk of non-payment. It’s also beneficial for consumers as it helps them manage their spending by knowing what charges are pending.
However, it can also lead to confusion as the reserved amount might appear as a charge on the cardholder’s account, even though it is not a final charge. It’s important for businesses to clearly communicate to customers when a pre-authorization is being made, and when the final charge will occur.