Klarna review: Buy-now, pay-later credit for online purchases

Pros

• Your spending limit can grow over timenReturns with refunds possiblenWidely accepted payment option

Cons

• Requires a debit or credit cardnLate fees and returned-payment fees may applynSome financing options require a hard credit check

What you need to know about Klarna financing

Founded in 2005 in Stockholm, Sweden, and headquartered in Columbus, Ohio, Klarna offers an app that lets you pay for purchases in installments or use more-traditional financing options thanks to a partnership with WeBank.

What is Klarna?

The Klarna app is a buy-now, pay-later app that provides different payment options for your purchases. Klarna can help you make purchases and pay for them over time, rather than upfront.

If you’re considering using Klarna to help you cover your next big purchase, here’s what you need to know.

How does Klarna work?

You can shop in-store or online by using the Klarna app or web browser, and then check out with Klarna. You can pay in one of three ways.

1. Split your purchase into four payments. With this approach, you use your own debit or credit card to make the purchase. The initial payment (one-fourth of the total purchase cost) is charged when the merchant completes your order. The next three payments are made automatically every two weeks after your first payment. If you make the payments on time and avoid any late payments or returned payments, Klarna won’t charge you fees.
2. Pay within 30 days of your order. Some merchants offer “Pay later in 30 days with Klarna.” With this option, Klarna sends you a digital invoice due 30 days after your order ships. You pay the balance with your own credit card, debit card or bank account. As long as you pay within 30 days, Klarna won’t charge fees.
3. Apply for credit. If you qualify, you could also use Klarna Financing. This option allows you to borrow money in the form of a line of credit from Klarna. But this option comes with an APR that may be on the higher end compared to some credit card options.

Does Klarna check credit?

Signing up for Klarna or downloading the app won’t result in a credit check, but if you apply for Klarna’s “Pay Later in 4,” “Pay Later in 30 Days” or monthly financing options, Klarna will perform a soft credit check to determine your eligibility. A soft credit check won’t affect your credit scores and won’t be visible to other lenders.

Some of Klarna’s credit options (such as Klarna Financing) may require a hard credit check. This kind of check is reported to credit bureaus and will show up on your credit reports.

You can use Klarna to shop at a lot of U.S. retailers

Klarna has become a widely accepted payment option. It’s available with hundreds of thousands of merchants in the U.S. and around the world. Some brands may allow you to make purchases with Klarna directly on the store’s website.

But not every merchant accepts all types of Klarna Financing. For example, some may not accept Klarna’s 30-day financing as an option.

You can increase your spending limit with a good payment history

Your spending limit with Klarna will change over time and can be affected by different factors, including your credit history and your record of paying off purchases with Klarna. You’ll be able to see your estimated spending limit after you pay off your first order.

Be aware of fees

While Klarna doesn’t charge interest for its “Pay Later in 4” or “Pay Later in 30 Days” options, it does charge a fee up to $7 for late payments and may also charge a returned-payment fee up to $27.

And since you’re still using your own credit or debit card, your financial institution may charge you interest or fees, depending on your agreement. There are no annual fees for the Klarna Financing option, but you’ll pay interest and there are also late payment or returned-payment fees up to $35 where applicable.

A closer look at Klarna 

Here are some other things to know about Klarna.

• Returns are possible — If you return or cancel part of your purchase, Klarna may issue you a refund to your original payment method. Refunds depend in part on how the store you bought from handles returns and cancelations.
• Minimum spending requirement — The minimum spend with Klarna is $10.
• Rewards program — Vibe, Klarna’s rewards club, offers additional perks like discounts or extra loyalty points at stores where you shop.
• Some credit options require a hard credit check — Applying for some of Klarna’s financing options may require a hard credit check. Unlike a soft credit check, a hard check is reported to credit bureaus and shows up on your credit reports.

Who is Klarna good for?

It may be better to avoid financing retail purchases, because it increases the risk of accruing debt and paying out extra money in the form of late fees and interest.

But if you need to make a large purchase and would benefit from breaking the payments into installments, using Klarna’s Pay in 4 or Pay in 30 Days no-interest options could be helpful — as long as you avoid interest and fees.

If you need more time to pay off your purchase though, you might be better off looking at different financing options, such as retail credit cards, personal loans or 0% interest credit cards.

Does Klarna build credit?

It’s not likely that using Klarna will help you build credit since Klarna doesn’t report your payment history to the credit bureaus.

Klarna runs a soft credit check, which won’t affect your credit scores, when you split your purchase into four interest-free payments. If you use one of Klarna’s financing options, a hard credit check may be required. This will show up as a hard inquiry on your credit reports and could lower your scores by a few points.

Note that Klarna sends any unpaid debts and missed payments to debt collection. If this happens, the delinquency could show up on your credit reports and have a negative impact on your scores. Be sure to pay your bills on time and in full to keep your account current.

Not sure if you can afford Klarna financing? Try our budget calculator.

Can buy-now, pay-later financing affect credit?

Buy-now, pay-later lenders are now able to report people’s payment history to the credit reporting bureaus. Note that BNPL lending agreements don’t typically offer the same types of consumer protections as more traditional financing, like personal loans.

BNPL apps can tempt you to spend more than if you were using other ways to pay. In fact, of those who have used BNPL services, 34% have fallen behind on one or more payments, according to a 2021 survey conducted by Qualtrics on behalf of Credit Karma.

How to apply with Klarna

The Klarna App is free to download and fairly simple to use. Here’s how to get started.

• Download the app or browser extension — The Klarna app is available for iOS and Android. Klarna also offers a Chrome browser extension.
• Connect your credit or debit card — Klarna accepts many major debit and credit cards but some exceptions may apply.
• Start shopping — You canuse the Klarna app to browse stores and make purchases, and then use it to check out with one of your payment methods. There are also options to purchase in-store. (A list of stores where you can do so is provided via the app.) At checkout, you can use a virtual card that’s loaded with the amount you want to spend and connected to your personal debit or credit card. Depending on the purchase and other variables, different financing options may be available.
• Approval process — Each purchase you make is subject to a review by Klarna. Attempting to make too many purchases in a short amount of time may result in your purchase being rejected.

Not sure if Klarna is right for you? Consider these alternatives.

• Affirm: Affirm is a buy-now, pay-later service that also offers a savings account with a competitive APY.
• Afterpay: Afterpay offers the ability to pay in-store via Apple Pay, Google Pay or Samsung Pay. You can also get payments split into four interest-free installments paid over six weeks.

*Approval Odds are not a guarantee of approval. Credit Karma determines Approval Odds by comparing your credit profile to other Credit Karma members who were approved for the personal loan, or whether you meet certain criteria determined by the lender. Of course, there’s no such thing as a sure thing, but knowing your Approval Odds may help you narrow down your choices. For example, you may not be approved because you don’t meet the lender’s “ability to pay standard” after they verify your income and employment; or, you already have the maximum number of accounts with that specific lender.