What is Klarna and how does it work?
KLARNA lets customers spread the cost of a purchase rather than paying up front - but it should be approached with caution.
The online service will start charging customers a late payment fee from April 21.
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 shopping app in June 2021, which customers can use to 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 a debt collection agency, licensed under the Financial Conduct Authority, can be brought in to handle the debt.
Up until this point, Klarna makes attempts to contact the customer to offer flexible repayment options and remind them to make any repayments.
Buy Now Pay Later firms generally don't have to carry out affordability checks with customers, but Klarna does.
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.
Its products are also offered at the checkout of hundreds of thousands of online retailers too.
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 roughly two months as payments complete after 60 days.
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 30 days (depending on the store) to decide whether you want to keep the item before being required to pay.
Customers can repay before their due date and can automate payments so they are automatically paid on their due date.
Klarna also offers a "Pay Now" service in which customers can pay immediately and in full.
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.
There is also the option to spread payments over several months, or even years, known as financing.
But because these payments come with interest charges, they are regulated.
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.
It also carries out checks on each customers' purchase.
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.
What happens if my Klarna repayment is late?
Klarna alerts you via the app or text when payment is due on or shortly after purchase.
It then sends four reminders by text, email and in-app push notifications before a late fee is charged on different schedules. These are:
Pay in 30
Reminder 1: 14 days before due date
Reminder 2: 2 days before due date
Reminder 3: on due date
Reminder 4: 2 days after due date
Reminder 5: 7 days after due date, advising that a late fee will now be charged
Pay in 3 (2nd and 3rd instalments)
Reminder 1: 2 days before due date
Reminder 2: on due date - advising that a payment has failed.
Reminder 3: 2 days before the second time we attempt to take a payment.
Reminder 4: on failure of second payment attempt
Reminder 5: 2 days before the third time we attempt to take a payment.
Reminder 6: on failure of third payment attempt, advising that a late fee will now be charged.
At any time before the due date, customers have the option to snooze a payment once for no cost, which gives them another 10 days before payment is needed.
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 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.
What shops are signed up to it?
A variety of retailers are signed up to 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 which over the payment option can be found on Klarna's website.
How does Klarna make money?
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.