KLARNA allows customers to spread the cost of a purchase instead of paying up front — but it should be approached with caution.
The online service will begin charging customers a late payment fee starting April 21.
Previously, there were no penalties for missed payments.
But if shoppers don’t pay on time, they’ll be stung by the £5 fee after a seven-day grace period.
It comes after the company launched a shopping app in June 2021 that allows customers to delay payments at any online store.
Previously, shoppers could only pay with Klarna in stores that had partnered with the Buy now, pay later company.
If you do not, cannot, or forget to make all repayments, a collection agency licensed by the Financial Conduct Authority can be hired to process the debt.
Until then, Klarna tries to contact the customer to offer flexible refund options and to remind them of any refunds.
Buy now, pay later companies are generally not required to conduct affordability reviews with customers, but Klarna does.
What is Klarna and how does it work?
Klarna is an app that you can use to shop at online retailers without paying – you then pay for the goods later.
Its products are also featured at the checkout of hundreds of thousands of online retailers.
Previously, customers could only pay through Klarna with certain retailers that Klarna had partnered with.
But now the service is available at all online retailers – regardless of whether they have collaborated with the store.
Customers can use the shopping app to spread the cost of a purchase over about two months, as payments are completed in 60 days.
Your item will be shipped to you immediately and you will receive an email letting you know when payment is due.
You have 30 days (depending on the store) to decide if you want to keep the item before paying.
Customers can repay before their due date and automate payments so they get paid automatically on the due date.
Klarna also offers a “Pay Now” service where customers can pay instantly and in full.
The benefit of the service is that you can buy things online and decide whether or not you want to keep them before you actually buy them.
There is also the option to spread payments over several months or even years, which is known as funding.
However, because these payments come with interest charges, they are regulated.
Unlike some credit cards, Klarna doesn’t charge interest or fees for the period between purchasing your goods and making payment.
What products does Klarna offer?
Klarna offers three products, all of which allow the customer to pay for their items at a later date.
However, the services differ slightly in terms of when you pay and how that might affect your credit score.
The Swedish company’s main product is the “Pay in 30 Days” service, which allows customers to postpone their payment date by 30 days.
To do this, Klarna carries out a gentle credit check that has no influence on your creditworthiness.
It also offers customers the option to pay in 3 – which splits the payment into three monthly installments, with the first installment being collected at the time the order is placed.
This works similarly to the Pay in 30 Days option – the only difference is that the payment is broken up into smaller parts and you’ll need to give some cash up front.
Thirdly, Klarna has a financing option – with a repayment over six months to three years. This involves a full credit check, which can negatively affect 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 must be approved with a gentle credit check in the background.
It also conducts reviews of each customer’s purchases.
This will not affect your credit score even if you are denied.
However, if you choose to pay back over several months – which the app calls “funding” – this feature requires a full background credit check.
If you are rejected, it could affect your credit score – something to consider before applying.
If you don’t pay your bills on time, your credit score could also suffer.
What happens if my Klarna refund is late?
Klarna notifies you via app or SMS when payment is due upon or shortly after purchase.
It then sends four reminders via SMS, email, and in-app push notifications before charging a late fee according to different schedules. These are:
Reminder 1: 14 days before the due date
Reminder 2: 2 days before the due date
Reminder 3: when due
Reminder 4: 2 days after the due date
Reminder 5: 7 days after the due date with the notice that a late fee will now be charged
Pay in 3 (2nd and 3rd installments)
Reminder 1: 2 days before the due date
Reminder 2: on due date – Indication that a payment failed.
Reminder 3: 2 days before the second payment attempt.
Reminder 4: if the second payment attempt fails
Reminder 5: 2 days before the third payment attempt.
Reminder 6: If the third payment attempt fails, it is pointed out that a late fee will now be charged.
Anytime before the due date, customers have the option to defer a payment once for free, giving them an additional 10 days before payment is required.
If your repayment is late after the seven-day grace period, late fees will apply.
The company will automatically attempt to collect payment from the card you entered at checkout.
If the automatic payment fails, it will try again in seven days, and then try again in another seven days if it fails again.
Klarna also has a team of staff that you can speak to about refunds if you default.
The company has also said accounts will be turned over to collection agencies if they remain unpaid after several months.
A wide range of retailers are registered with Klarna, including ASOS, Dorothy Perkins, JD Sports and Superdry.
You can also use the service with Nike, Gymshark and Samsung.
A full list of shops that have the payment option can be found on Klarna’s website.
On its website, Klarna says it makes money by charging retailers to use its service.
This applies to both the “Payment in 30 days” and “Payment by installments” options.
Klarna believes retailers are willing to pay these fees because their services help increase sales.
The amount it charges a company varies between countries.
https://www.the-sun.com/money/45019/klarna-buy-now-pay-later-app-safe-which-shops/ What is Klarna and how does it make money?