Klarna to start charging late fees

'Buy now, pay later' (BNPL) firm Klarna is introducing late fees for missed repayments.

Klarna's 'pay later' schemes are a form of short-term unregulated credit, allowing you to pay for items in instalments or at a later date, interest-free.

Currently, you aren't penalised for missing a payment with Klarna as you are with other BNPL schemes such as Clearpay or Laybuy. But for orders placed on or after 16 March, you could face fees of up to £10 if you don't make your payments in time.

Here, Which? looks at how the fees will work and what to do if you're struggling to make BNPL repayments.

How much will I be charged?

Late fees will be charged at £5 or at 25% of the order value if your order is below £20.

In comparison, both Clearpay and Laybuy charge £6 for late repayments.

Klarna will charge a maximum of two late fees per order – meaning your purchase could end up being £10 more expensive than planned if you repeatedly miss payments.

There will be a seven-day grace period before incurring a fee, so it's well worth trying to pay up during that week if you can. Klarna says it will also send four reminders during this timeframe.

Why is Klarna doing this?

Klarna says it's taken on board research from Which? that found a number of online retailers were not clearly outlining BNPL providers' late fees at the checkout. It says it will ensure late fees are clearly signposted throughout the customer journey when paying with one of its 'pay later' products.

The fees will be used for a 'Customer Recovery Programme' to support customers in arrears. Klarna will offer to waive 50% of the balance owed by customers who have fallen behind on their payments instead of engaging a debt collection agency. 

• Find out more: BNPL schemes explained

Will it affect my credit report?

Ensuring you can pay back your Klarna repayment plan is more important than ever.

Klarna started reporting to credit reference agencies – Experian and TransUnion – last year. This means missed payments will be noted on your credit report and could stay there for six years for other lenders to see.

Your overall credit score won't be impacted by Klarna payments for now. Klarna says further updates to credit reference agencies' scoring mechanisms is needed before credit scores will be impacted.

Not all BNPL providers take the same approach to reporting on credit files. If you miss a repayment with Zilch, for example, your credit score will be impacted.

Unlike more traditional forms of credit borrowing, BNPL schemes are currently not regulated by the Financial Conduct Authority (FCA) – meaning there are fewer safeguards to protect consumers if something goes wrong.

Which? is calling for urgent regulation of BNPL firms to ensure consumers are better protected when deciding to pay later at the checkout.

• Find out more: BNPL schemes could be regulated by the end of the year

I'm struggling with BNPL debt, what can I do?

If you're unsure you'll meet your repayments, or are struggling to keep on top of multiple BNPL plans, here are some tips on managing your debt.

1. Freeze your repayments

You can postpone your repayment by 10 days in the Klarna app without incurring an extra charge – but remember that this function can only be used once per payment.

You can also defer payments with Clearpay and Zilch.

2. Contact the BNPL scheme

It's always best to be honest and upfront if you're struggling with repayments. You might be able to work out a tailored repayment plan that is more affordable.

Klarna advises you to reach out to its customer service team if you're struggling.

3. Set up alerts for payments

BNPL companies do have apps that you can download on your mobile phone to help you keep on top of payments.

For example, Klarna will send a push notification the day before your payment is due, and a text on the day your payment is due.

If you owe money to multiple BNPL providers and don't want to download the apps, consider setting reminders on your phone to help prompt you when repayments are due.

• Find out more: how to pay off BNPL debt

4. Avoid high-cost credit to pay off BNPL debts

If you're struggling to keep up with your BNPL debts, avoid turning to other high-cost credit such as a payday loan or credit card that charges interest – as you could get caught in a debt spiral.

Making a household budget plan that summarises your earnings and spending habits could be useful to give you a clear idea of where your cash is going and how much you can afford to pay back. If you stick to it, a budget plan will help you start clearing your debt.

Follow our step-by-step plan to working out your household budget.

5. Set a BNPL shopping limit

Typically, BNPL schemes allow you to delay paying for items for between 30 days to six weeks, and allow you to build up bills as high as £2,000.

Some schemes will wait for you to make a payment, but others take payments automatically from your account, which could leave you short for priority bills like your rent, mortgage or council tax. If you use BNPL schemes regularly it's worth setting a limit on your spending to ensure you can pay it all back within a short period.

6. Seek debt advice

If you have debts that are making it more difficult to pay your priority bills, then it's really important that you get free and confidential debt advice as soon as possible.

Debt charity Step Change can take a look at these debts and give free, practical debt advice and solutions on how best to pay these debts while staying on top of your most important living expenses.

You can also check out our list of free debt advice organisations.

• Find out more: 44 tips on clearing debt