Klarna is at the forefront of 'buy now pay later' shopping schemes right now, with its options to pay for goods at some 28,000 partnered retailers either in three instalments or at a later date. Fans say it can be a bit of a lifesaver when you're waiting for payday, although people like Martin Lewis have raised concerns about such schemes encouraging people to buy more than they can afford.
Now, Klarna has announced that it will be introducing late payment fees later this month, charging £5 per order after a certain period and then a further £5 if the sum remains unpaid beyond that. In an email to those who use the service yesterday (February 28) Klarna said: "We're reaching out to let you know that from March, 2023, Klarna will be introducing late fees for missed payments made with 'Pay in 3' and 'Pay in 30 days' in the UK.
"Late fees will only be applied if a payment remains unpaid after the due date has passed. At the same time, we're doing lots to help you avoid missing a payment, including offering automatic payments, sending friendly reminders, and applying a grace period before we charge a fee."
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What is Klarna and is it safe to use?
According to information on its website, Klarna describes itself as "the smooth and safe way to get what you love today, and pay over time" adding that its 'Pay in 3/Pay in 30 days' services are "unregulated credit agreements" and that "borrowing more than you can afford or paying late may negatively impact your financial status and ability to obtain credit".
Klarna partners with retailers all over the world, including fashion brands - like ASOS, New Look, &Other Stories, River Island, Accessorize, Pretty Little Thing, Adidas, Hugo Boss, Ralph Lauren, Stella McCartney, All Saints and H&M - beauty brands like Estee Lauder, Charlotte Tilbury, Beauty Bay and Lush, electronic brands like Game, Bose, Braun and Dyson, and homeware brands such as Wayfair, AO and B&M, and even Etsy.
Klarna has its own app, which lists latest deals and offers from such brands, allows you to set price drop alerts on your saved items and gives you live updates for your deliveries, as well as offering "hassle-free returns" and the ability to "stay on top of your budget".
Credit checks and credit score
According to the FAQ page on Klarna's website, "depending on the payment method or service you choose, we may perform different types of searches to check your financial standing. You can find an overview of the credit checks we run for our payment options and services and whether they impact your credit score.
"Using the below Klarna payment options will not affect your credit score:
- Choosing to 'Pay in 3 instalments'
- Deciding to 'Pay in 30 days'
- Creating a 'One-time card'
"However, existing, late and unpaid balances, and payment holidays, are visible on your credit file to other lenders. Making repayments on time consistently will help build a positive history when using our payment options.
"Using Klarna might affect your credit score when applying for one of our financing options. If you decide to use financing, we might perform a credit check with credit reference agencies to complete your credit assessment.
"This credit check will show up as an inquiry on your credit report, will be visible to other lenders and might impact your credit score."
Klarna vs credit cards, Clearpay, Paypal Pay in 3 and Monzo Flex
In an article from moneytothemasses.com, Klarna is compared to other 'buy now pay later' options, with the likes of Clearpay and Paypal Pay in 3 being rather similar to Klarna, bar a few points:
- Clearpay works in much the same way as Klarna, however has fewer repayment options, with all purchases broken down into four instalments, over six weeks. Clearpay charges a late fee for missed payments, with an initial penalty of £6, followed by another £6 after seven days if the debt is still outstanding. Like Klarna, it caps late payments at 25% of the total purchase price.
- Paypal Pay in 3 is the same as Klarna's Pay in 3 option. However, Paypal does not charge late fees for this service, but will report late or missed payments to credit reference agencies, which could impact your credit rating.
The article goes on to say that "Monzo Flex differs from Klarna in the way it allows users to opt to move purchases from the previous two weeks into a payment plan that allows them to pay in instalments and meaning customers have more flexibility to manage finances, without having to decide at the point of purchase. There is the option to pay in three instalments interest free or to pay over six or 12 instalments with an interest rate of 19% APR.
"Klarna, meanwhile, allows you to pay after 30 days, in three instalments, or via Klarna financing, in payments over up to 36 months. Although, like Monzo Flex, these attract interest of up to 18.99% APR."
Is it better than using a credit card?
In the same article, one fundamental difference listed between using Klarna or any buy now pay later provider, compared with a credit card, is the fact you won't receive 'Section 75 protection'. By using the buy now pay later provider as a third party to make purchases, customers forego their consumer rights under Section 75 of the Consumer Credit Act.
This means that, even if they use their credit card to make payment for an item or service over £100, they are not protected by law if it is faulty, not as described, not delivered or if the retailer goes bust. While Klarna has its own comprehensive Buyers' Protection Policy, it is still a company policy rather than being enshrined in law, experts from moneytothemasses say.
They add: "If you use a credit card (and not a buy now pay later provider) you automatically have protection under the Consumer Credit Act on all purchases between £100 and £30,000. This means if the item is faulty, not as described or the company goes bust, you will get your money back.
"However, the appeal of using Klarna as opposed to a credit card is the fact it is usually interest free. Unless you have a credit card with a good 0% interest deal, it will usually work out cheaper to opt for buy now pay later."
When and how will the new Klarna late fees be applied?
According to the latest email communications from Klarna, for orders made on or after March 16, 2023, a £5 late fee will be applied for payments that remain unpaid seven days after the due date for Pay in 30 days and 14 days for Pay in 3. If a payment continues to remain unpaid, an additional £5 fee will be applied and added to the total outstanding amount.
Klarna will charge a maximum of two late payment fees per order, which is capped at a total of £10. You'll also get multiple reminder messages via email, push notifications or SMS, to ensure that you stay "well informed" and there are "no surprises".
Klarna says it has a number of tools to help customers pay on time, including:
- Friendly reminders - Klarna will send at least four reminders before applying a late fee
- If you need more time, you can also extend your due date, free of charge, by up to 10 days, once per payment
- From March, you will also be able to set up Autopay for all your Pay in 30 days purchases in the Klarna app, which means Klarna will automatically withdraw the money on the due date, so you won't ever have to worry about missing payments.
Further support
Within Klarna's email, the company also advises anyone experiencing "financial hardship, needing any additional support or help to plan your future payments" to contact the Customer Support team to "discuss what options are available and find the best solution for you". They also link to non-for-profit organisations for free, confidential and impartial debt advice.
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