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What is Pre-Authorization?
A pre-authorization is a temporary hold that a vacation rental host or manager places on a guest's payment card. It is not a charge, but it verifies that the card is valid and has sufficient funds to cover potential costs like a security deposit or incidental fees.
The held amount reduces the card's available balance for a short period, typically without any money actually leaving the guest's account.
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How it works
Through a payment processor, a host initiates a pre-authorization request for a predetermined amount on a guest's card, usually before or at check-in. The guest's bank then sets aside these funds, making them inaccessible to the cardholder.
This hold typically lasts for a set number of days, often 5-10, after which it is automatically released if no claim is made by the host. In case of damages or other charges, the host can 'capture' all or part of the pre-authorized amount to cover the costs.
Why it matters
Pre-authorization provides a crucial layer of financial security for hosts by guaranteeing that funds are available for damages, without the administrative effort of collecting, holding, and refunding a cash deposit. It improves the guest experience by avoiding an immediate out-of-pocket expense, which can be a psychological barrier to booking.
Platforms like Lodgify can integrate with payment gateways to automate the pre-authorization process, simplifying security deposit management for hosts.
Examples
- A host sets their property management software to automatically place a $500 pre-authorization hold on a guest's credit card one day before arrival. The stay is damage-free, and the hold is automatically released by the bank seven days after it was placed.
- Upon check-in at a luxury villa, the property manager uses a point-of-sale terminal to pre-authorize $1,000 on the guest's card for incidentals. The guest orders in-house catering, and the host captures $250 of the held amount to cover the bill, releasing the remaining $750.
- A guest's dog causes a scratch on a hardwood floor. The host documents the damage, gets a repair quote for $200, and captures that amount from the $400 pre-authorized security deposit. The remaining $200 is released back to the guest's available balance.
- A guest attempts to book a property, but the pre-authorization for the security deposit is declined due to insufficient funds. The host receives a notification and contacts the guest to secure a different payment method before confirming the reservation.
Frequently asked questions
Is a pre-authorization the same as a charge?+
How long does a pre-authorization hold last?+
What happens if a guest's card has insufficient funds for a pre-authorization?+
Why does a pre-authorization still show up on my credit card statement?+
Related terms
Security Deposit
A refundable sum collected from a guest before check-in to cover potential damages, excessive cleaning, or rule violations during their stay.
Payment Gateway
A payment gateway is a service that authorizes and processes online payments for vacation rental businesses. It acts as a secure intermediary between a host's…
Online Payment
Online payment refers to the electronic transaction of funds over the internet to book and pay for a vacation rental. This method provides a secure, automated…
Tokenization
Tokenization is a security process that substitutes a sensitive data element, such as a credit card number, with a non-sensitive equivalent known as a 'token.'…