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5 Feb 2022

Klarna Card: seven things you need to know

Customers won't benefit from Section 75 protection if something goes wrong with a purchase

'Buy now, pay later' (BNPL) firm, Klarna, has launched the Klarna Card for UK shoppers, allowing you to delay payments for 30 days when in a store.

BNPL schemes, offered by firms such as Klarna, Laybuy and Clearpay, have soared in popularity in recent years, allowing you to pay for items in instalments or at a later date, interest-free.

You might have seen BNPL schemes offered as payment options at the checkout when shopping online - but Klarna's new card means you can decide to 'pay later' for your in-person purchases too.

Before applying for the card and taking out credit, it's important to understand how it works and the consequences of missing repayments.

Read on to find out more about repayments, credit scores and what protections are in place if something goes wrong.

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1. You need a good credit history to get the Klarna Card

You must be a UK resident and at least 18 years old to be eligible for a Klarna Card.

Klarna told us you must also have a good credit history - it will carry out an affordability check when you apply for the card, which involves looking at your income data and running a soft credit check.

A soft credit check means Klarna will take an initial look at certain information on your credit report. This won't be visible to other companies and won't have an impact on your credit score or future credit applications.

2. The average credit limit is £900

Klarna will recalculate your spending limit on a daily basis.

It does this by looking at your credit history (via a soft credit check), your repayment history with Klarna to date, and how many outstanding or overdue payments you have (including with other credit providers).

Klarna told Which? soft credit checks will be carried out on a regular basis rather than daily.

If you repay on time, your credit should be revolving. For example, if you spend £100 and repay in 30 days, you should be able to use £100 on your card again.

But this isn't guaranteed - Klarna stressed that it will recalculate how much you're able to spend on a daily basis.

Klarna told Which? the overall maximum limit on the card is £2,500 but to be eligible for this you would need to meet income, credit score and payment behaviour thresholds. The current average limit is closer to £900.

If you choose to try the Klarna Card, don't be tempted to max your credit limit and make sure you'll be able to repay the amount within the 30-day repayment period before committing to the purchase.

Your spending limit on your Klarna Card also won't be visible to other lenders, so it's important to really assess whether you can afford to take on more debt before approaching other credit providers.

Klarna told us it's been working with credit reference agencies to address this issue and is also trialing 'open banking' - an initiative that allows banks to share their customers' financial data.

3. You can use it at home and abroad

Woman paying at till

In general, the Klarna Card can be used wherever a Visa credit card is accepted. You can pay using contactless or chip and Pin.

The card can also be used overseas in any store that accepts Visa - there are no foreign exchange fees and Visa handles the currency conversion.

However, there are certain types of businesses that are restricted for ethical reasons, including gambling companies and other financial merchants associated with high levels of fraud.

4. Klarna may use a debt collection agency if you fail to repay

After making a purchase on your Klarna Card, you'll have 30 days to make the payment in the Klarna app.

The payment is interest-free and there are no late fees. But if you miss the repayment, Klarna will freeze your card.

If the payment remains unpaid for several months, Klarna says it will engage a debt collection agency to try to contact you and retrieve the money owed.

Klarna told us your credit report will not be marked if you miss repayments.

5. There is no Section 75 protection on purchases

Although you're borrowing when using the Klarna Card, it isn't covered under the Consumer Credit Act like other credit cards.This means if something goes wrong, you won't benefit from Section 75 protection.

Section 75 applies on purchases worth £100 up to £30,000 and means your credit provider is jointly liable if anything goes wrong with your purchase - so if a company goes bust and you don't receive your item, you can make a claim with your credit provider to get your money back.

Klarna Card users will not benefit from Section 75 protection or the Klarna Buyer Protection Policy that comes with its other 'Pay in 30 days' and 'Pay in 3 instalments' products.

However, the card is protected by Visa's chargeback rights, which allow you to claim money back from Klarna if you don't receive an item you've paid for.

Chargeback can be useful when the cost of goods or services is under £100, but chargeback isn't enshrined in law like Section 75.

6. You can't complain to the Financial Ombudsman Service (FOS)

Similarly, as the card isn't regulated under the Consumer Credit Act, you won't be able to complain to the Financial Ombudsman Service (FOS) if something goes wrong.

Klarna told us it's long argued that Section 75 protection and access to the FOS should be extended to BNPL transactions. In the meantime, it's set up its own internal complaints adjudicator where consumers aren't satisfied with its standard complaints process.

  • Find out more: if you experience issues when using Klarna or any other BNPL scheme, you can tell us via our BNPL complaints form.

7. There are fraud checks in place

If Klarna detects a potentially fraudulent payment on a Klarna Card, its automatic systems will alert you. You'll then be asked to confirm that it's a genuine purchase.

If you notice your card is lost or stolen, you can either temporarily freeze it or block itpermanently on the Klarna or web app. Its fraud protection policy says you should do this immediately.

You can also contact Klarna by chat or 24/7 by phone to report any suspicious activity.

Klarna told us, in general, if there are fraudulent transactions made on your card and you've taken reasonable steps to protect your account, you would not be held liable for these transactions.

Tips for shopping safely with your Klarna Card

Set up alerts for repayments in your diary or on your phone so you know exactly what to pay back and when. This is particularly useful if you have a number of different repayments to make. You should also be able to view all your Klarna repayments in one place in the app.

Draw up a budget so you know how much money you're paying back each month, and how much money you can spend. Don't be tempted to max your credit limit and make sure you'll be able to repay the amount within the 30-day repayment period before committing to the purchase. Remember that other credit lenders won't be able to see the spending limit on your Klarna card - so think carefully whether you'll be able to meet repayments before applying for credit from other providers.

Make any returns promptly so you don't end up making repayments for something that you want to send back. We've heard anecdotally from BNPL users that refunds can take longer to process if you've paid with a pay later scheme - so it's worth sending your items back asap.

Contact Klarna if you think you might miss a repayment Klarna allows you to snooze your repayments for 10 days if you don't think you'll be able to meet the initial 30-day deadline. Honesty is always the best policy in this situation - contact Klarna immediately if you're struggling.

Listen: find out what our in-depth interviews with BNPL shoppers uncovered in the Which? Money Podcast and why Which? is calling for BNPL companies to be regulated without delay.