Buy now, pay later is becoming an increasingly popular way for consumers to shop online or in stores. According to one survey, 39% of consumers have used these short-term, point-of-sale installment loans at some point. Klarna is one of several online platforms that provide this type of financing. Founded in Sweden in 2005, the company now serves an estimated 90 million customers, with two million transactions processed per day. Here's an in-depth look at how it works and what it costs.

Key Takeaways

  • Klarna offers several different point-of-sale installment loans for shoppers.
  • Shoppers can pay back their loans, interest-free, over 30 days or in four installments.
  • Shoppers also have the option to finance their purchases over six to 36 months and pay interest on them.

How Does Klarna Work?

Klarna is a buy now, pay later service that's designed primarily for online purchases. You can use the Klarna mobile app anywhere online or choose Klarna as your payment option at checkout with participating retailers. There are no interest payments unless you choose to finance your purchase, and there are multiple ways to repay what you owe.

For instance, you can pay off the entire purchase in 30 days (Pay in 30 Days) interest-free, pay it in four interest-free installments (Pay in 4), or finance it over a period of six to 36 months.

Klarna requires a minimum purchase of $10. It doesn't specify a maximum purchase size. Instead, your credit limit and the amount you can spend is based on:

  • How long you've been shopping with Klarna
  • How many Klarna purchases you've already paid back
  • The time of day
  • The size of the purchase

Generally, the more often you use Klarna to pay, the larger your credit limit may be, as long as you're consistent in repaying

Common Questions About Klarna

Here are the answers to some other common questions about how Klarna works.

Can You Use Klarna to Pay Bills?

No. While some buy now, pay later financing platforms might allow for bill payment, Klarna is designed strictly for shopping.

Is There a Credit Limit?

As mentioned, Klarna doesn't specify any preset credit or spending limit. Instead, that's determined on a purchase-by-purchase basis. So if you're wondering, "Where can I see my credit limit?" the answer is that you can't. There's no way to determine with certainty how much you'll be able to spend until you actually attempt to complete a purchase with Klarna.

Does Klarna Affect Your Credit Score?

Short-term financing options like buy now, pay later can have an impact on your credit score. Your credit may be affected when you apply, as you make loan payments, or if you happen to miss a payment.

Klarna does not specify whether it reports payments to any of the three major credit bureaus. But it's possible that if you miss a payment or default on a payment agreement, that might be reported. Klarna may also assign your account to a debt collection agency to recover any outstanding amounts you owe.

Does Klarna Check Your Credit?

Yes, Klarna can check your credit. But whether this involves a soft or hard credit check depends on the payment option you choose.

If you're choosing the Pay in 4 option, with loans split into four installment payments, Klarna will use a soft credit pull. If you're interested in monthly financing with Klarna, a hard credit check may be required.

A soft credit check will have no impact on your credit score, while a hard credit check can have a small, negative impact.

What Credit Score Do You Need to Use Klarna?

Klarna doesn't specify any minimum credit score you need to use its services. But generally, the better your credit is, the easier it may be to get approved with financing through Klarna.

Can You Get Klarna if You Don’t Have a Credit Card? 

Klarna is designed to be a convenient way to pay for purchases online. Not having a credit card isn't a barrier to qualification as long as you have a sufficient credit history for a soft or hard credit check.

While Klarna can look at your credit, it also considers other factors when making approval decisions. You might be turned down if, for example:

  • You've made too many purchase requests in a short period of time.
  • You have a poor payment history for previous Klarna loans.

Rejections don't negatively affect your credit score. And even if you're denied Klarna financing once, it's possible that you could be approved another time.

Does Klarna Charge Interest?

Klarna charges no interest when you choose the Pay in 4 or Pay in 30 Days options. Both of these buy now, pay later loans are interest-free as long as you pay what you owe in full within the allotted time frame.

You may, however, pay interest charges if you use one of Klarna's financing options. This includes month-to-month financing or planned payments. The annual percentage rate for standard purchases is 19.99%, but you may be able to avoid interest if you're eligible for a No Interest If Paid In Full promotional offer.

Does Klarna Charge Fees?

Klarna can charge fees if you miss a payment. A fee of $7 applies the second time Klarna tries and fails to collect a payment from you. If the minimum payment due for a financing agreement is not paid on time, you can be charged up to $35 per missed month.

Klarna may also charge a fee if you request to have your due date changed so you can pay earlier or later.

Is Klarna Safe?

Klarna says it takes customer security seriously and uses a variety of measures to protect your information. That includes computer safeguards, secured files, and the use of secured buildings to store servers. Klarna also limits which employees have access to customer accounts and information.

What Retailers Accept Klarna?

According to Klarna's website, it's possible to use its app to pay online at any U.S. retailer. So that includes clothing stores, home stores, beauty stores, and electronics stores.

But you can also use Klarna to pay directly at participating retailers who list it as a payment option at checkout. Stores that accept Klarna include:

  • Adidas
  • Bloomingdale's
  • Etsy
  • GameStop
  • Macy's
  • Nike
  • Sephora

How Do Returns Work When Using Klarna?

Returns are subject to each store's return policy. If the store issues a refund, Klarna updates your payments accordingly. In the case of a full refund, any remaining payments due are canceled, but partial refunds may be handled differently. It can take up to 14 days for refunds to process; you can track their progress in the Klarna app.

How Do You Pay Klarna?

When it's time to make payments to Klarna, you have several options. Klarna accepts all major debit and credit cards, including Mastercard, Visa, American Express, and Discover.

Klarna does not accept prepaid cards as a form of payment. You can make payments manually through the Klarna app or schedule automatic payments.