Klarna is one of the best-known names in Buy Now, Pay Later (BNPL). You will see it as payment option at the checkout with a host of online retailers, including ASOS, John Lewis and Booking.com. It offers point-of-sale credit to consumers, allowing them to spread the cost of purchases.
For most of its services, the short-term debt is interest free. It also has a longer-term Klarna Financing option, which is more akin to a standard credit card and allows buyers to pay in instalments over 6-36 months, although interest is payable (representative APR 27.90% variable) and it necessitates a full credit check.
Klarna stands out from its competitors due to its slick marketing, easy-to-use app and market share. It positions itself as a 'safe' option and claims that using its services won't damage your credit rating and that you won't be charged fees, even if you are late making payments. However, as we will discuss later in this review, users do still need to exercise caution when using any Buy Now, Pay Later provider, Klarna included.
How does Klarna work?
Klarna works in partnership with more than 15,000 merchants in the UK to provide customers with the option to pay for goods or services in instalments rather than upfront. It offers this service for free to the end-consumer and makes its money from the retailers by charging a percentage of every sale made using its service.
As Klarna has grown, it has increased the number of options available to customers. These include:
Klarna Pay in 3
Best for: Those wanting to budget for slightly more expensive purchases that they can't afford to pay for upfront
Payment schedule: The total cost is split into three equal instalments, the first taken at the point-of-purchase and the following two payments taken after 30 days and 60 days
Application process: At the checkout, customers provide their name, address and credit or debit card details. Klarna performs a soft search on the customer's credit file and gives an instant decision on whether they have been accepted for the service and what their maximum credit limit is
When is money taken? The first payment is taken when the retailer confirms the product has been shipped. The following two instalments are taken automatically using the card details provided at checkout after 30 calendar days and then, finally, at 60 calendar days. A reminder is sent a few days before each payment is taken
Is there a late fee? Yes, a late fee of £5 may be charged if a payment is missed and remains unpaid after the 14-day grace period. A further £5 may be charged for further late payment and total late fees are capped at £10 or 25% of the order value.
Klarna Pay in 30 days
Best for: Those who may want to buy several items to try, with the option of only paying for what you end of keeping, without tying up funds in the meantime
Payment schedule: You will be liable to pay for any items that haven't been returned after 30 days. You do not have to pay anything upfront and you can make payments at any time during the 30-day period.
Application process: You do not need to provide your credit or debit card details at checkout to make the purchase, but you will need to give your name and address to facilitate the soft credit check. Again, you will be told whether you have been accepted almost instantly. It is then your responsibility to make payment direct to Klarna within 30 days
When is money taken? The payment window opens from the point that the order is shipped
Is there a late fee? Yes, a late fee of £5 may be charged if a payment is missed and remains unpaid after the 7-day grace period. A further £5 may be charged for further late payment and total late fees are capped at £10 or 25% of the order value.
Klarna card
Best for: Those who want a physical Visa card to make purchases with, which can then be paid for either immediately or within 30 days.
Payment schedule: Once you have made a purchase, you will be sent an invoice, which must be paid within 30 days. The Klarna card is free, with no monthly charge.
Application process: You can apply for the card through the Klarna app or online account. To be approved you need to be over 18, a UK resident and have a good credit history.
When is the money taken? The invoice is payable within 30 days.
Klarna Premium and Klarna Max
Klarna also offers two paid-for debit card options offering a variety of perks for a monthly fee of £16.99 for Premium and £44.99 for Max.
Klarna Premium customers get 0.5% cashback on spending, global travel insurance and a 2GB eSIM. It also includes subscriptions to book summarising service Blinkist, fitness class app ClassPass, fertility app Clue, magazines Vogue and GQ, mental health app Headspace, online laundry delivery service Laundryheap, online classes through MasterClass, and AI design tools from Picsart. The card itself is a 16g metal card in silver or black.
Klarna Max subscribers get 1% cashback, global travel insurance, rental car insurance, a 5GB eSIM and unlimited airport lounge access worldwide via LoungeKey Pass. It also includes all of the Premium level subscriptions, plus subscriptions to travel website ASmallWorld, audiobook site Audiobooks.com, all Condé Nast titles, and The Times and Sunday Times. The card itself is a 16g rose gold metal card.
Klarna One-time card
Best for: Using at stores or shops that aren't partnered with Klarna. It is a single-use "card" that is stored on the Klarna app and is linked to your normal debit or credit card. You can use the card when you make purchases through the app or, alternatively, you can set up a One-time card in advance of making your purchase through your Klarna account.
Payment schedule: The idea is you set up the One-time card with the total amount you plan to spend on the purchase, including shipping costs. You also establish the payment plan you wish to follow. If you don't end up using the total amount added to the card, you can request a refund for the additional money.
Application process: You can apply through the Klarna app or through your Klarna account. The card can only be used once and, if unused, will expire after 24 hours.
When is money taken? The card is linked to your debit or credit card and money will be taken in line with the payment plan you have chosen for the specific purchase.
Klarna Financing
Best for: Making larger, more expensive purchases that require a longer period to pay off
Payment schedule: In much the same way as with other lines of credit, you have the option at the point of purchase to choose the terms of the financing, with a payment term of between 6-36 months. You will be informed at this stage how much interest will be payable on the loan
Application process: As this is a longer-term credit product, customers have to complete a full application form and a hard credit check will be performed, which will feature on their credit report. Customers will be informed if they have been accepted within a few minutes and they won't have to undergo the same application process again for subsequent purchases
When is money taken? Customers can set up automatic monthly payments or make manual payments at any point during the payment period
What happens if I miss a payment on Klarna?
Klarna does charge late fees. Customers will be given a grace period of seven days for its 'Pay in 30 product and 14 days for its Pay in 3' product, after which a late fee of up to £5 will be charged. Klarna will charge a maximum of two late fees per customer order up to a maximum of 25% of the purchase value. BNPL firms Clearpay, Laybuy and Paypal charge between £6-£12 for every late payment. While previously Klarna didn't report usage to credit reference agencies, it has been visible on credit reports from TransUnion and Experian since 1st June 2022. If you persistently don't pay over a period of time, in spite of repeated communication from Klarna, the debt is likely to be passed on to a debt collection agency.
Another impact of not making your payments on time is the possibility of being banned from using Klarna's services in the future. Indeed, your line of credit is directly affected by the way you use Klarna, with your credit limit increasing gradually as you build up a borrowing history with the company.
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