Credit card

Klarna sparks new debt fears with ‘buy now, pay later’ credit card

If consumers don’t repay on time, they will be charged high interest rates, late fees, or turned over to debt collectors, which could hurt credit scores.

Klarna is set to launch a physical ‘buy now, pay later’ (BNPL) card in the UK, sparking more warnings from consumer bodies about people struggling with debt.

The new card allows shoppers to delay payments for up to 30 days when used in larger stores, as BNPL products were previously only offered online in the UK.

The unregulated BNPL product needs more protection to protect UK consumers who may run into debt, deferring payments, without realizing it, consumer lobby group Which? noted.

“BNPL businesses should make it clear to customers that they could be referred to debt collectors and their credit ratings could be tarnished if they miss payments,” said Myron Jackson, personal finance campaign manager. at Interactive Investor.

If they don’t repay on time, customers will be charged high interest rates, late fees, or turned over to debt collectors, which could hurt credit scores.

The Swedish company has a waiting list of 400,000 people in the UK, she said, revealing the “high demand for a new approach to credit”, after a successful launch in Germany and her country of origin.

It plans to add other payment options later, including split purchases via three monthly payments.

The Klarna card offers deferred payments without incurring interest charges or late fees (if repaid on time), while consumers will require a credit history check before being accepted.

“For online shopping where credit makes sense, buy now-pay later has become the sustainable alternative with no interest and clear payment schedules,” said Alex Marsh, head of UK operations at Klarna.

The company said shoppers will get a personalized cap on spending, which is automatically adjusted after purchases based on their financial history, with hundreds of pounds rather than thousands.

Monzo became one of the first UK banks to offer in-person BNPL services in September, but its spending cap is £3,000, well above Klarna’s estimates.

Meanwhile, Paypal started offering the service to UK buyers in the latter parts of 2020.

In February 2021, the government announced its intention for BNPL to be regulated by the Financial Conduct Authority to protect consumers from the “potential for harm”, The Guardian said.