Buy now pay later services (also known as BNPL) have catapulted in popularity within the past few years, offering shoppers a new and interest-free type of credit line that’s not tied to a typical credit card. Klarna is a BNPL platform with more than 25 million users in the U.S., and 147 million worldwide.
This review takes a deep dive into Klarna’s history, how it works, and some potential pitfalls of this service.
What is Klarna?
Klarna is a BNPL lender that lets you make a store purchase today and pay over time through one of several payment plans. The company was founded in 2005 in Stockholm, Sweden, and works with a network of 400,000 merchants.
Retailers that offer Klarna at online checkout include well-known brands such as Calvin Klein, H&M, Adidas, Bloomingdales, and more. But Klarna isn’t just for online shopping. You can use the service as an in-store payment method as well.
How does Klarna work?
You need to be at least 18 years old with a positive payment history to use Klarna. If you make a purchase and aren’t satisfied with the item, the merchant will provide return instructions, and then Klarna will refund your bank account and adjust your plan payments.
There are four main ways you can use Klarna to make purchases.
- Shop directly at online stores. Choose Klarna as the payment option when you check out from a participating online store. Payments will automatically be authorized using the credit or debit card connected to your Klarna account.
- Shop with a virtual card. If you don’t see Klarna as a payment option at checkout, you can request a virtual one-time card from the Klarna app to pay for merchandise wherever prepaid cards are accepted.
- Shop in the app. Log in, shop with merchants, and set up payment plans directly within the Klarna shopping app.
- Pay in the store. Log into your Klarna app and tap “pay in-store.” Then find the store where you want to shop and create a digital card. Connect that card to your digital wallet and pay at the checkout counter.
- Use the Google Chrome extension. Use Klarna’s Google Chrome extension to check out at online stores in a few clicks.
Klarna payment plans
|Plan||Payment terms||Interest||Late fees|
|Pay in 4||First payment is due at checkout, and the remainder every 2 weeks||None||Up to $7 or 25% of your order amount, whichever is less|
|Pay in 30||You must make a payment within 30 days of the purchase||None||None, but if you pay late, you might not qualify again|
|Financing||Monthly payments for up to 36 months||0%-29.99% (as of May 31, 2023)||Up to $35|
Pay in 4
Pay in 4 is a popular option that lets you break up payments for purchases into four installments with no interest. Klarna will perform a soft credit check in order to see whether you qualify.
Your first payment will be due when you check out, with the remaining three payments due every two weeks. For example, if you go on a shopping spree that totals $300, you would have an upfront payment of $75 when you checkout and then make payments of $75 every two weeks. Klarna also charges a late fee of 25% (up to $7) for missed payments.
Pay in 30
Klarna’s Pay in 30 option sends you an invoice for your purchase that you will have to pay within 30 days. Pay in 30 also offers interest-free payments, but you could be declined for another payment plan if you don’t pay by the due date. Klarna uses a soft credit check in its Pay in 30 plan approval process.
Klarna offers financing for up to 36 months on certain purchases. Interest applies to this payment option with an annual percentage rate of 0%-29.99% (as of May 31, 2023). Unlike the payment plans above, Klarna may perform a hard credit check to approve your application.
Pros and cons of Klarna
- Make purchases and pay them off over time
- Payments are interest-free unless you choose financing
- Applying usually doesn’t involve a hard credit check
- Many big-name brands accept Klarna as a form of payment
- Multiple payment plans could strain your budget
- Interest for financing options could be high
- Plans are not completely free and charge for late payments
What are the benefits of Klarna?
Klarna could be a smart option for one-off purchases. Maybe you need a laptop, and you don’t want one shopping trip to eat up your entire paycheck. Klarna’s Pay in 4 plan would let you spread out those payments without having to worry about interest charges.
If you don’t have the credit to qualify for a credit card (or you prefer not to have one), Klarna provides an alternative way to finance large purchases. Klarna also has a rewards program where members get access to exclusive offers and earn one point for every $1 spent that can be redeemed for rewards, such as gift cards or vouchers for your favorite retailer or service.
What are the downsides of Klarna?
Klarna doesn’t give you a credit limit. Instead, each repayment plan is offered on a case-by-case basis, so you’re a bit in the dark about what purchases will or won’t qualify. Using Klarna may not work for you if you’re struggling with personal finances and trying to get out of debt.
Not making payments could also result in expensive late fees. If you have limited or no credit and want to build credit, using a secured credit card to make and pay off purchases could be a smarter way to improve your score.
FAQs about Klarna
Is Klarna legit?
Klarna is a legitimate company that’s been around for over a decade, despite becoming popular within just the past few years. The company has 5,000 employees, handles two million transactions per day, and has 147 million users worldwide. Klarna processes payments through secured connections and doesn’t store your information.
Klarna has also been accredited by the Better Business Bureau since 2015, but customer sentiment about Klarna isn’t very positive. Many customers have complaints about trouble with payments and frustrations with getting issues fixed. However, the company gets 4 out of 5 stars on Trustpilot and many customers report better experiences.
Is Klarna bad for your credit?
The popular Klarna Pay in 4 and Pay in 30 payment options won’t affect your credit score because they only involve soft inquiries, which don’t get reported to credit bureaus. However, applying for certain Klarna financing could show up on your credit report if a hard inquiry is performed.
Even if there is no credit check, one risk of BNPL services is how payments could impact your budget. If keeping up with payments makes you fall behind on other bills, those unpaid bills could impact your credit. While using pay over time services may not affect your credit directly, new payment obligations could create an additional financial burden.
Alternatives to Klarna
Affirm is similar to Klarna in that you can pay in four interest-free installments every two weeks or choose a longer-term loan with monthly payments. Interest for the longer-term loan is up to 30.00% APR, which is higher than what Klarna offers. You also need to shop first and then apply for Affirm financing at checkout.
With Afterpay, you can pay in four installments over six weeks with no interest. Unlike Klarna, Afterpay’s spending limit starts out at $600 and increases once you prove that you can keep up by making on-time payments.
American Express offers Plan It, a feature that lets cardholders split up purchases of $100 or more into installments with a fee. You can sign up for Plan It by logging into your card account and clicking on qualifying statement purchases. Payment terms may range from three to 24 months. Some eligible American Express cards include:
- Blue Cash Everyday® Card from American Express
- Blue Cash Preferred® Card from American Express
- American Express Cash Magnet® Card
All information about American Express Cash Magnet® Card has been collected independently by FinanceBuzz.
With PayPal Credit, you can pay off purchases of $99 or more over six months with no interest. Although you get more time to pay off your balance compared to Klarna, this is a deferred interest rather than an interest-free offer. That means if you don’t pay off the credit within six months, you’ll be charged retroactive interest from the purchase date.
Perpay is an online shopping marketplace that lets you pay in installments from your paychecks. Perpay doesn't charge interest or fees on your purchase, but you’ll need to make payments with direct deposit. As you use Perpay, the company will continually apply your history towards helping you build credit over time and customers can potentially boost their credit by an average of 39 points.
With Zebit, you can pay for purchases over six months without interest. Your payment frequency is determined by how often you get paid. For example, if you get paid every two weeks, you will pay in 12 installments over six months. Down payments range from 25%-25%.
How to apply with Klarna
- Download the app. The app is available for free in the Apple App Store or Google Play store.
- Set up your Klarna account. Klarna will ask for your email address and then send you a code to verify your email. This initial process of setting up your account doesn’t involve a credit check.
- Start shopping. Browse the stores within the Klarna shopping app. If you find a store you like, you’ll be taken to the store’s website within the Klarna app, where you can add items to your shopping cart.
- Apply for a Klarna payment plan. When you’re ready to check out, you’ll get prompted for Klarna payment options. The payment options available can depend on which store you’re shopping at, how much you’re trying to purchase, and your previous history.
- Keep track of your payments. After making purchases and setting up payment plans, Klarna’s app offers notifications and features to help you keep track of your orders, spending, and deliveries.
Klarna doesn’t outline specific credit criteria for users, but credit is a factor in getting approved for a payment plan. If you have unpaid balances with Klarna, that could also affect your ability to qualify for additional payment plans. Other factors that may impact approval are your credit history with Klarna and the amount of your purchase.
The final word on Klarna
Klarna may be suitable for smaller purchases, such as sneakers, a purse, or a wedding gift for your best friend. But when it comes to larger purchases, saving up rather than using Klarna’s long-term financing options could save you on interest.
Learning how to get a loan or credit card with an introductory APR deal could be a better alternative when you need to borrow money for a big-ticket item, such as furniture or appliances. If you have good credit, these options could give you more time to pay off your debt with a lower interest rate.
Some of the best personal loans have no origination fees, offer low-interest rates to qualified borrowers, and have quick application processes. Although Klarna offers a sleek interface for applying for credit, it’s not the only way to get quick money when you need it, so be sure to explore your options.
Disclaimer: All rates and fees are accurate as of May 9, 2023.