What Is Klarna?
Klarna is a Buy Now Pay Later (BNPL) service provider. With Klarna, you can choose one of four payment options to make a purchase either online, in-store, or in-app.
Klarna was founded in 2005 in Stockholm, Sweden, and has since expanded to more than 147 million active customers and 400,000 merchants in 45 countries.
How Does Klarna Work?
Klarna offers several plans to split up your purchase into smaller payments, or installments.
- Pay in 4: One of the most popular payment options, Pay in 4 allows you to split up your total balance into four equal installments to be paid automatically every two weeks, interest-free. The first payment is due at checkout.
- Pay Now: Pay the total amount upfront either online or in-store using the mobile app.
- Pay in 30 Days: Pay nothing upfront. Get your purchase now, then pay the full balance in 30 days, interest-free.
- Pay Over Time: Ideal for larger purchases, Pay Over Time allows you to break up big balances into smaller installments to be paid over 6–24 months. Interest rates range from 0–29.99%.
Choosing to Pay in 4? Here’s how it works. If you make a $100 purchase, you will owe $25 at checkout. The remaining balance of $75 would be divided into three equal installments of $25 to be paid with a debit or credit card every other week until the balance is paid off.
Payments are scheduled automatically, but if Klarna tries and fails twice to collect an installment, you will be charged a late fee of up to $7.
Klarna also offers a digital card housed in the mobile app. You can use it anywhere, anytime even if the merchant is not a Klarna partner. You owe nothing upfront, and Klarna splits purchases up into four interest-free installments due every other Friday.
There are several ways to use Klarna: in-store, online, or in-app.
- In-store purchases: Use your mobile app or Klarna card to pay for in-store purchases. Choose your payment plan at checkout.
- Online purchases: Klarna partners with tons of merchants so you can easily select Klarna as your payment method at checkout. If you’re purchasing from a non-Klarna partner, add a browser extension to your Google Chrome and select your payment plan.
- In-app purchases: Shop, purchase, and unlock exclusive deals from tons of Klarna partners directly from the mobile app.
Pros and Cons of Using Klarna
There are a number of advantages and disadvantages to using Klarna.
Pros of Using Klarna
- Interest-free payments
- Several payment plans depending on your financial situation
- Soft credit check approval process won’t damage your credit score
Cons of Using Klarna
- Charges late fee
- Credit score damage if you miss an installment
- Buy Now Pay Later can be a slippery slope if you don’t know what you’re signing up for
Should You Use Klarna?
Deciding to use Buy Now Pay Later is a very personal decision. It requires you to know deeply how you handle your finances and whether you are able to avoid temptation easily.
You might want to use Klarna if
You do not qualify for a credit card or have a credit card with a low limit
Buy Now Pay Later affords you the opportunity to make purchases with credit even if you do not have the money in your account right this moment.
However, it is important to only make purchases with Buy Now Pay Later if you are certain that you will be able to pay off the installments as Klarna charges your account. Missing a BNPL payment can result in a late fee and damage to your credit score.
You want or need to purchase a large-ticket item
Mattresses, furniture, appliances, tires. Expenses pop up, and if you do not have the money in your checking or savings account, sometimes there is no choice but to put it on credit. Buy Now Pay Later gives you an extra financing option without the interest. But again, make sure that you’ll be able to pay off your installments when they roll around.
You might not want to use Klarna if
You have a tendency to overspend or can’t avoid the temptation
This requires a long, hard look in the mirror. The fact of the matter is that it’s easier than ever to want things that you see online — and then to turn those wants into purchases. Buy Now Pay Later makes that even easier.
You are trying to build credit
Buy Now Pay Later is not a traditional form of credit. Klarna, unlike credit card companies, does not report on-time payments to the credit bureaus. It only reports missing or late payments. This means that Buy Now Pay Later cannot help you — it can only hurt you.
Where Can You Use Klarna?
Klarna can be used at more than 400,000 merchants around the world. The company partners with brands in the auto, beauty, fashion, electronics, home, luxury, and entertainment spaces (and beyond).
Popular brands that accept Klarna include:
- Bed Bath & Beyond
Does Klarna Hurt Your Credit Score?
Many creditors perform a hard inquiry on your credit report to determine your creditworthiness before issuing you a loan or credit card.
Klarna is considered a short-term financing option, so the company does not perform a hard inquiry on your credit. The company does, however, run a soft credit check to determine if you are eligible to receive financing, but the check does not hurt your credit score.
Once you’ve made your purchase and selected a payment plan, you must make on-time payments. If you miss payments, you will not only incur a late fee, but Klarna will report your missed payments to the credit bureaus. This can bring down your credit score and hurt your chances of getting approved for financing by Klarna and other lenders in the future.
Alternatives to Klarna
Klarna works much like other Buy Now Pay Later services including Affirm, Afterpay, and Sezzle. The BNPL solution that you use often depends on which one is offered by the merchant.
However, if you do not want to use Klarna, there are other options.
Taking out a personal loan won’t make sense for everyone. However, it can enable you to make large purchases and pay them back over a longer period of time. The lender may run a hard inquiry to assess your creditworthiness, though, which could ding your credit score for a short amount of time.
You’ll also want to make sure that your interest rate is low, or competitive with Klarna, and that you have a payment plan in place to avoid late fees and credit score damage.
0% interest credit card
Alternatively, if you are making a large purchase, you can apply for a 0% interest credit card, which may make more sense than using Klarna. Like with a personal loan, the credit card company will likely run a hard inquiry to see if you qualify for the credit card. A low-interest credit card could make sense if you’re looking to take advantage of the introductory offer or earn rewards for your purchase.