Pre-authentication is a part of a payment cycle. It is the reservation of a certain amount on the customer’s credit card to ensure that the credit card is functional and has sufficient funds. The customer can’t use the reserved amount, but it is not charged. If the merchant does not make a transaction or cancels the pre-authentication, the amount will be unbooked and the customer can use it for other transactions.
In car rental, rental companies use pre-authentication to hold a security deposit. When a customer picks up a car, the supplier reserves the predefined security deposit amount on the customer’s credit card. The card is not charged, but the funds cannot be used. The deposit is reserved for the whole rental period. If there is damage to the car or the fuel policy is not met, the supplier can use the funds in the deposit to cover the cost. If there are no issues with the car, then the company cancels the pre-authentication and the funds will be released.