Authorized Amount

What Is an Authorized Amount?

An authorized amount is a sum that a merchant transmits to a credit or debit card processor to make sure the customer has the funds required to make a purchase — the approved amount of money to be charged. The authorized amount is usually identical to the cost of the goods or services being purchased in a single transaction, but in some cases, it is a small amount, such as $1, or an estimated amount, such as $100, that confirms the card is valid or sufficient funds are available.

Understanding an Authorized Amount

An authorized amount essentially represents the approved sum of money to be charged on a debit or credit card. To obtain authorization for a purchase, the merchant must get the consumer’s approval and then confirm with the card issuer or issuing bank that the consumer has enough in available credit (for a credit card purchase) or a sufficient checking account balance (for a debit card purchase). The authorized amount is what the cardholder has agreed to pay and the card issuer has confirmed is available for use.

In effect, when the merchant checks whether you have sufficient credit available on the card to pay for whatever you want to buy, they are “reserving” the amount so you can’t accidentally spend it on something else. But the amount hasn’t actually been charged yet. If you happen to look at your account statement online or via a mobile device, the sum might appear as a "pending charge."

Authorized amounts also apply to debit card purchases. In this case, the merchant gets authorization from your bank that you have enough money in the checking account linked to your debit card to pay for the purchase. As in the credit card scenario, when you look at your checking account balance, you’ll see the authorized amount deducted.

Example of an Authorized Charge

Say you go to the grocery store and buy a basketful of items totaling $55.08. You then swipe your credit card to pay for the transaction, and the transaction is approved. $55.08 is the authorized amount — that is, the amount you’ve agreed to pay and the amount your card issuer has confirmed is available. When you check your credit card balance later, you will see that the authorized amount has been subtracted from your available credit and added to your balance.

If the authorized amount is approved by the card issuer, the purchase goes through in what is called an authorized transaction.

Special Considerations

With regular purchases, all this happens pretty instantaneously, and the authorization amount and the final transaction amount are the same. But sometimes the authorized amount will temporarily differ from the actual amount of your purchase.

For example, if you use your credit card at a gas station, you might see an authorized amount of $1 in the pending transactions section of your credit card charges when you access your account online. Before allowing you to pump gas, the gas station authorizes your credit card for a small amount to make sure your card is valid. The $1 authorized amount will not appear on your statement, however; it will be replaced by the actual amount you spent on gas — say, $25.

An authorization charge can also be updated over time to more closely reflect the final charge. This typically happens when you use your credit or debit card to check into a hotel, reserve a rental car, or book a table at a restaurant. For example, when you first arrive, the hotel will take your card and submit for authorization the nightly room rate. Over the course of your stay, it might apply to the card additional things you charge, like minibar drinks or meals billed to your room. Only at the end of your stay at the hotel, though, will the bill be finalized and the hotel actually gets paid by the credit card issuer.