KLARNA lets customers spread the cost of a purchase rather than paying up front – but it should be approached with caution.
The online service started charging customers a late payment fee from March 16.
Beforehand, it didn’t charge any penalties for missed payments.
But if shoppers don’t pay up on time moving forwards they’ll be stung with the £5 fee after a seven-day grace period.
It comes after the firm launched a new shopping app, where customers could delay payments at any online store.
Previously, shoppers could only pay using Klarna at stores that had partnered with the buy now, pay later firm.
If you don’t, can’t or forget to make all of the repayments within three months, your debts are referred to a collection agency.
In February 2021, the Government announced that interest-free buy now pay later lenders would be regulated by the Financial Conduct Authority (FCA).
Firms now have to carry out affordability checks before lending.
They also have to make sure customers are treated fairly, particularly those who are vulnerable or struggling with existing debts.
The rules apply to the buy now, pay later sector as a whole, not just Klarna.
What is Klarna and how does it work?
Klarna is an app you can use to make purchases without payment at online retailers – you then pay for the goods later.
Previously customers could only choose to pay through Klarna with certain retailers it had partnered with.
But now, the service is available at all online retailers – regardless of whether it has partnered with the store.
Customers can use its shopping app to spread the cost of a purchase across three months.
Your item will ship to you straight away and an email will be sent to you indicating when the payment is due.
You’ll have 14-30 days (depending on the store) to decide whether you want to keep the item before being required to pay.
When payment is due, you log in to your account and use a debit card to settle your balance.
The advantage of the service is that you can buy things online and decide whether you want to keep them or not before you actually for them.
That means if you decide you don’t want your item, you aren’t left waiting for the refund to appear in your bank account.
There is also the option to spread payments over several months, or even years.
Unlike some credit cards, Klarna doesn’t charge interest or fees on the period between purchasing your goods and paying.
What products does Klarna offer?
Klarna offers three products, which all allow customers to pay for their items at a later date.
However, the services do differ slightly in terms of when you will pay and how it could affect your credit score.
The Swedish firm’s main product is its Pay in 30 Days service, which lets customers delay their payment date by 30 days.
In order to do this Klarna performs a soft credit check, which does not impact your credit score.
It also offers customers the option to Pay in 3 – which splits the payment into three monthly chunks, with the first instalment taken at the point of ordering.
This works in a similar way to the Pay in 30 Days option – the only difference is the payment is split into smaller chunks and you have to hand over some cash upfront.
Thirdly, Klarna has a financing option – with repayment spread out over six months to three years. This involves a full credit check, which could have a negative impact on your score.
Does Klarna affect my credit score?
If you want to use the Pay in 30 Days or Pay in Three functions, Klarna users have to be approved using a soft background credit check.
This doesn’t impact your credit rating, even if you are denied.
But if you choose to repay over several months – something known as “financing” on the app – a full background credit check will be needed for this feature.
If you are rejected, this could affect your credit score – something worth noting before applying.
If you fail to pay your bills on time, your credit score could also be affected.
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What happens if my Klarna repayment is late?
Klarna alerts you that you need to make a payment two days before it is due.
If your repayment is late, you will not be charged interest or penalties in the UK, but it may affect your credit score.
The company will automatically attempt to collect payment from the card that you entered at checkout.
If the automatic payment fails, it will try again after seven days, and then again after a further seven days if it fails again.
Klarna also has a team of staff who you can talk to about repayments if you’re getting behind.
The company has also said that accounts are passed to debt collection agencies if unpaid after several months.
A variety of retailers are signed up to Klarna, including ASOS, Dorothy Perkins, JD Sports and Superdry.
A full list of shops which over the payment option can be found on Klarna’s website.
On its website, Klarna says it makes money through charging retailers a fee for using its service.
This applies to both its “pay in 30 days” and “instalment” options.
Klarna believes retailers are willing to pay these fees because its services help to increase sales.
The amount it charges a company varies between countries.
