A security deposit is a hold on the customer’s card. A deposit is part of the rental price, paid upfront. They are taken at different moments for different reasons, and mixing them up costs you money.
The short version. Take the deposit (an upfront payment toward the rental) at checkout. Take the security deposit (a hold on the card, not a charge) when the customer picks up or you deliver. A card hold lasts 7 days at most, so a security deposit held at booking has usually expired before the rental starts.
Owners and customers say “deposit” for two things that work in opposite ways.
| Deposit | Security deposit | |
|---|---|---|
| What it is | Part of the rental price, paid early (also called an upfront payment or down payment) | A guarantee against damage, loss or a late return |
| How it’s taken | A charge: the money moves to you | A hold: the bank sets the amount aside, nothing moves |
| When | At booking | At pickup or delivery |
| After the rental | Counted toward the total; the balance is paid before or at pickup | Released after the return inspection, or partly charged for damage |
| If the customer cancels | Your cancellation policy decides what is refunded | Nothing to do: no hold has been placed yet |
Say which is which everywhere the customer reads it: at checkout, in the confirmation and in the rental agreement. “Deposit, $150, charged today” and “Security deposit, $500, a hold at pickup, not a charge” leave nothing to argue about. Two lines that both just say “deposit” make customers think they are paying twice.
A hold, or authorization, asks the customer’s bank to set an amount aside without moving it. Before the hold expires you either release it, or capture all or part of it; capturing is the actual charge. If you do neither, the hold expires on its own: the money goes back to the customer and you can no longer charge against it.
How long a hold lasts is set by the card networks and the payment gateway, not by your rental software:
| Gateway | Card entered online | Card reader at the counter |
|---|---|---|
| Stripe | 7 days (5 for Visa when you start the charge without the customer) | 2 days (5 for Visa) |
| Square | 7 days | 36 hours |
| PayPal | 3 days guaranteed (the “honor period”) | — |
Stripe’s documentation also describes 30-day “extended authorizations”. They need Stripe to approve your account, and rental businesses don’t get that approval. No other gateway holds a card for 30 days either. Plan on 7 days.
Most rentals are booked ahead. A customer books on August 1 for a pickup on October 3. A hold placed at checkout expires around August 8: the customer sees a pending amount on their card for a week, it disappears, and on October 3 the equipment goes out with nothing held.
“Then charge the security deposit at checkout and refund it after the return?” That works, but it costs you on every rental, including the ones where nothing breaks. Payment gateways keep their processing fee when you refund. Stripe doesn’t return it, Square stopped returning it in April 2023, and PayPal keeps at least its fixed fee. At Stripe’s standard US rate of 2.9% + 30¢, charging and refunding a $500 security deposit costs you $14.80, on money that was never yours to keep. Meanwhile the customer’s $500 is out of their account for two months.
The same goes for authorizing the whole rental at booking. Holding the full price and charging it later “so a cancellation costs no refund fee” fails for the same reason: on any booking more than a week out, the authorization expires before the rental happens.
A hold at checkout only works when the whole rental, return and inspection included, fits inside those 7 days: booked Thursday for Saturday, back on Sunday. If nearly all your bookings are same-week, holding at checkout is fine.
For most rental businesses this is rare: a month of scaffolding, a two-week RV trip. A hold won’t stretch that far on any gateway, so choose one of these:
This one has no single answer. It depends on how far ahead customers book, how big the order is, and what a cancellation costs you.
| Your bookings look like | Take at checkout | Why |
|---|---|---|
| Booked a few days ahead, modest orders (tools, bikes, kayaks, a single trailer) | Full payment | Little changes in a few days, and nobody is left with a balance to pay at the counter. |
| Booked weeks or months ahead, large orders (tents, wedding and party packages, RVs) | A deposit, often a quarter to a half, with the balance due before delivery | Few people pay thousands of dollars months ahead. The deposit holds the date for them. |
| Dates you can only sell once (summer Saturdays, holiday weekends) | A larger deposit that isn’t refunded on late cancellations | A date lost a week out can’t be resold. |
| Mostly walk-ins and same-day rentals | Payment at pickup | There is no booking gap to protect. |
Whichever you choose:
Each product has its own security deposit amount, and checkout shows it on its own line, apart from what is charged now. You choose when the hold is taken: on payment, for businesses that rent same-week, or at pickup, either at the counter, by the customer on their phone at check-in, or at handover. The deposit is a percentage you set, and the balance is due later. After the return you release the hold, or charge part of it, from the order.
Three use cases show it running: a trailer hire where the security deposit is held on payment and released at return, an unstaffed yard where the renter places the $250 hold on their own phone at the gate, and an equipment yard with a 30% deposit at checkout and the security deposit taken at handover.
Sources: Stripe, Place a hold on a payment method; Stripe, Understanding fees for refunded payments; Square, Delayed capture of card payments; Square, An update to Square’s refund policy (2023); PayPal, Authorize a payment and capture funds later. Windows and fees as published by each gateway in October 2026.
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