Klarna vs Afterpay: Which is The Best Option for You?

Have you heard of buy now, pay later services?

Commonly referred to as BNPL, these services allow consumers to purchase goods via a series of equal payments. The most popular method is four interest free payments, starting with a down payment and then spreading out the remaining payments over several weeks.

Although these payment options have been around for a while, they only began gaining ground in 2019. Today, 17% of the U.S. population has used a BNPL service, and a majority of them have either used Afterpay and Klarna. These two are the most popular buy now pay later services for both in-store and online shopping. 

In this post, we will do an exhaustive explanation of the services offered by both, and then a comparison to establish the pros and cons of each.

But first, let’s look at why these buy now, pay later services should interest you in the first place.

Why Should You Use a Buy Now, Pay Later Service?

You must be wondering why anyone would need such payment options; can’t we just save up and buy what we want? Well, of course, you could. But in the following situations, a BNPL strategy would  be ideal:

• When an expensive item only has limited stock and will sell out before you save up

• When you do not want to incur interest on a bank account loan to purchase an item

• When you cannot access loans fast enough, or access them at all

• When you need a little help managing your payment plan

BNPL services can be a convenient option to help you manage your finances! They help you plan your purchase in four equal payments, normally have no interest at all, and also have minimum credit requirements that most people will find accessible. 

Also, with a BNPL, you do not have to miss out on your favorite exclusive goods. From limited-edition designer shoes to luxury perfumes, nothing ever has to be out of reach when you are a little short on cash.

So, how do these services work? : Let’s discuss Klarna and Afterpay.

What is Klarna and How Does It Work?

Klarna is a renowned buy now pay later platform which has solidified its position as the frontrunner in the industry, boasting an astounding 150 million active users according to their official website. With partnerships established with over 500,000 merchants worldwide, Klarna ensures a diverse array of options for its users, cementing its status as the go-to choice.

Originally known as Kreditor, the company transformed and adopted the name Klarna in 2009. It wasn’t until the mid-2010s that Klarna embraced the buy now pay later model, coinciding with its expansion into the banking sphere a mere year later. Founded by Swedish entrepreneurs Sebastian Siemiatkowski and Niklas Adalberth, Klarna showcases their innovative spirit and keen business acumen.

How it Works: Klarna Payment Method

Users can access the service through a mobile app that allows them to make both online and in-store purchases. At the time of your initial Klarna purchase, you’ll pay 25% as a down payment. The rest of the balance is then paid over the next six weeks, where 25% of the initial price is paid every two weeks.

Here is an overview of Klarna:

What is Afterpay and How Does It Work?

In 2014, Nick Molnar and Anthony Eisen launched Afterpay. The service is now a prominent Australian financial technology company that is now among the global leaders in the BNPL niche.

Afterpay, also known as Clearpay in the EU and UK, has garnered a massive global user base, attracting millions of users worldwide. Today, 9% of all digital payment users in the USA use Afterpay.

In addition to that, Afterpay has established collaborations with over 100,000 merchants across the globe, facilitating seamless transactions for its ever-expanding customer base.

How it Works: Afterpay Payment Method

Afterpay is similar to Klarna. It can be accessed via a mobile app that allows users to do both online and in-store purchases. There is no minimum amount dictated by the platform, but some retailers who work with Afterpay have a minimum amount.

One unique thing about Afterpay is the fact that the platform has a hierarchical loyalty system based on purchase points. What this means is that each time you purchase with them, you earn points, and the more points you have, the higher your rank.

Here is a breakdown of the system:

• Gold: 0 to 99 points

• Platinum: 100 to 499 points

• Mint: 500+ points

At the Mint level, users are allowed to make their first payment after two weeks! That means Mint users don’t even have to worry about the down payment.

Here is an overview of Afterpay:

Klarna vs Afterpay: A Detailed Comparison

Now we know the basics of each platform, but how do they compare to each other?

There are a lot of details that anyone can miss when it comes to anything related to fintech. From safety to credit scores and hidden fees, financing can get confusing. But does this mean you have to go through a never-ending amount of information, articles, and consultations?

Of course not! In this section, we’ll look at all the features that you should consider, and what they mean in the world of BNPL. Here’s everything you need to know to choose the best BNPL service for yourself:

Klarna vs Afterpay: Interest and Fees

The majority of buy now, pay later services follow a fair and straightforward policy: as long as you fulfill all your scheduled payments, you don’t have to worry about any additional charges or interest. 

This principle extends to Klarna’s and Afterpay’s pay-in-four services. Both these services operate on a fee-free structure, meaning they do not impose any charges for utilizing their pay-in-four financing. 

Furthermore, neither Klarna nor Afterpay require any fees to open an account or avail yourself of their financing options. The emphasis lies on ensuring a transparent and hassle-free experience for users, where they can enjoy the benefits of convenient payments without incurring any unnecessary costs.

Another detail to note is that if you choose a longer repayment term on Klarna, there will be an interest charge. The interest rates for these loans oscillate depending on the retailer, ranging between 0% and 29.99%.

Finally, neither Klarna nor Afterpay has prepayment penalties, so you do not have to worry about paying your installments before their due dates!

Afterpay vs Klarna: Limits

Klarna’s minimum purchase amount is $10. But the maximum limit depends on how much credit you have on Klarna. You can’t ask for more credit, but you can ask to make individual purchases that go over your credit limit. Klarna’s team of underwriters will then have to approve your request.

On the other hand, Afterpay doesn’t have a set minimum amount you have to spend, but the stores they work with might have one. The most you can spend with Afterpay will be displayed on their app and will depend on your personal information. So, the app gives you an amount they’ve pre-approved for you, but that doesn’t guarantee that any payment limit will automatically be accepted when at checkout.

Klarna vs Afterpay: Regional Availability

Although Klarna is available in many countries, some of these countries still do not have all of Klarna’s features. Let’s break it down here:

Afterpay is available in the following countries:

• Australia, 

• Canada, 

• France, 

• New Zealand, 

• Spain, 

• the UK, and 

• the US

Afterpay vs Klarna: Late Fees

If any of the four payments is late, Klarna administers a $7 late fee for each delinquent payment. However, this measure is relatively lenient.

Afterpay takes a more stringent stance by demanding a minimum late fee of $10 for late payments, which usually has the potential of escalating in various ways. For orders less than $40, the maximum late fees imposed on delinquent payments are limited to 25% of the initial purchase price. 

Then, for orders equal to or more than $40, late fees are charged in two parts: an initial partial late fee of $10 and then an additional partial late fee of up to $7 if the missed payment remains outstanding for 7 days past the due date.

Klarna vs Afterpay: Extending Payment Dates

Both Afterpay and Klarna offer the flexibility to extend payment deadlines without negatively affecting your account’s credibility. Klarna allows you to pay an additional fee of approximately $3 (in Australia) to grant you a few extra weeks to settle the payment.

On the other hand, Afterpay takes a slightly different approach. The platform permits users to postpone payment dates based on their rewards level. Users, regardless of their level, can defer payment up to three times per year. 

However, customers at higher levels enjoy the benefit of delaying payment up to six times. It is worth noting that the Afterpay app limits the payment deferral period to a maximum of 7 days, applicable only to the second and third payments.

Afterpay vs Klarna: Credit Requirements

When a lender gives you the green light for financing, they typically examine your credit history. However, buy now, pay later services take a different approach as many of them do not require a credit check at all. Most of these services offer short-term financing without conducting anything more than a soft credit inquiry.

In the case of Klarna’s pay-in-four service, they only perform a soft credit inquiry which has no impact on your credit score. This type of inquiry is used to assess your payment reliability. However, for longer-term financing, Klarna may require a hard credit check. If, like most lenders, you fail to repay your debt, the delinquency can be reported to credit bureaus.

On the other hand, Afterpay does not assess your credit when you create an account or make a purchase. Furthermore, even if you make a late payment, it will not be reported to credit bureaus. This option proves beneficial for individuals who have experienced credit challenges in the past or those who are in the early stages of building their credit history.

Klarna vs Afterpay: Soft Credit Check and Credit Bureaus

Both Klarna and Afterpay only conduct soft credit checks to acquire a credit report as mentioned above. Usually, such checks do not warrant the involvement of credit bureaus. Therefore you do not have to be worried about being reported and getting a bad score if for any reason you do not manage to make a payment.

However, other Klarna financing services conduct hard credit checks.

Disadvantages of Using Buy Now, Pay Later Services

Although BNPL apps are convenient, there are some challenges every user should be aware of so that they can know how best to handle them. Knowing the drawbacks will allow you to have a better experience with any buy now, pay later service you choose to use.

General Challenges of Using BNPL Services

• You risk going over your spending limit

• BNPL may be interest-free, but if you’re using your credit card, you may incur interest charges elsewhere and unmonitored credit card debt

Regardless of whether we are comparing Klarna vs Afterpay, Affirm vs Afterpay, Sezzle vs Afterpay or any other BNPL services, all will have these challenges. But here are issues specific to Klarna and Afterpay:

Challenges of Using Klarna

• You will be subjected to a soft credit check

• You cannot purchase gift cards

• Late payments will be charged late fees

Challenges of Using Afterpay

• Available in fewer countries

• Available in fewer stores

• Does not offer additional financing services

As we can see, the experience we have with BBPL apps depends largely on our awareness of the services offered, how well we follow the rules, and our understanding of general financial management.

Klarna vs Afterpay: A Summary of  Everything You Need to Know

We have covered a lot of ground so far. So, to make things easier, here is a summary of some key points:

• Both Platforms Are Safe To Use

• Both Are Widely Accessible

• Both Platforms Charge No Interest 

• Neither Can Hurt Your Credit

• Klarna Offers Additional Financing Products

• Klarna Includes More Stores

Also, here is a quick overview of what we have covered in this comparative analysis:

Klarna vs Afterpay: Which One is For You?

Now that we know everything about these BNPL services, we can choose! The first thing you need to ask yourself is: what is your financial situation?

Klarna has more stores and is available in more countries. It is therefore more diverse and accessible. However, if all the stores you love are on Afterpay, and it is available in your country, you can choose either; there will be little difference.

Neither feels like a good fit? Still can’t decide? No problem! There are several other buy now, pay later services you can try. Compare Buy Now Pay Later Apps more extensively and take your time to make a decision.