Why do hotels take a pre-authorisation?

Why do hotels need pre-authorisation

What is pre-authorisation?

A pre-authorisation is a temporary hold of funds on a credit or debit card. It is important to understand it is a hold and not a transactional charge. Hotels will normally hold a dollar value on your nominated card at the time of check-in. The dollar valued held will vary from hotel to hotel so it is recommended to read the terms and conditions at the time of booking or enquire directly with the hotel prior to arrival. The reason for the pre-authorisation hold is so there are sufficient funds available to cover incidental charges incurred during your stay. Without a pre-authorisation a hotel could be exposed to guests leaving without settling their accounts and no way to recoup the costs.

What are incidentals?

Incidentals can be things like Wi-Fi, car parking, mini bar, room service and spa treatments. Depending on the hotel or resort you book there could be other services you use that incur costs. Incidental charges also encompass any damages, such as people smoking in a non-smoking room, or even those that might take a liking to some of the furnishings or amenities if you get our drift.

Upon check out the hotel will finalise the account and the bank can then release the hold of the remaining funds. The time in which it takes for pre-authorisation to release from your credit card comes down to the type of card you have and the bank your card is with. The current industry standard is anywhere between 7 to 30 business days, but of course, can be processed faster.

Who else uses pre-authorisations?

Car rental agencies also use pre authorisations. By placing a hold on funds when the car is rented, agencies can be sure that the car will be returned in good shape, with a full tank of gas. If there is damage to the car or a need for fuel, the hold will cover these charges. 

Tour operators and activity providers also utilise pre-authorisations. For those lending customers expensive pieces of equipment, such as a bicycle or surfboard, the funds protect them from being stuck with the costs associated with loss, damage, or theft. In these cases, the hold is also referred to as a “security deposit”. 

Quick Tips

  1. If for any reason your funds have not been released within the advised time frame, phone the bank yourself. Banks are not at liberty to discuss the details of a credit card with anyone other than the cardholder. The bank is responsible for releasing the hold after the hotel has settled your room account. The hotel can send a pre-authorisation release form to assist in the process where the funds have not been released.
  2. We recommend using a credit card where possible for a pre-authorisation rather than your debit card, so your funds are not held but rather borrowed funds are.
  3. Always check with the hotel what the dollar amount is for pre-authorisation as it will vary. It will be in their terms and conditions and often on your booking confirmation. You don’t want to be caught out with insufficient funds at check-in or be left short of funds during your holiday.

To learn more about the travel industry and how it operates, please visit our blogs page.