Klarna vs Afterpay: Key Differences and Benefits
Klarna and Afterpay harken back to the good old days of layaway when you could walk into your favorite local retailer and purchase items that might have been outside your budget.
Read: How To Get Cash Back on Your Everyday Purchases
Both platforms enable you to purchase an item with a small deposit and pay the rest in installments. But what do these modern renditions actually entail? What are their advantages and drawbacks? Most importantly, which one makes more sense for you?
This article will provide a breakdown of these two popular platforms and help you make a decision that suits both your wallet and lifestyle.
How Are Klarna and Afterpay Similar?
Klarna and Afterpay are two of the top Buy Now, Pay Later companies in the e-commerce space right now. As a result, many well-known brands accept both options.
Both platforms operate under a comparable business model. Klarna and Afterpay each:
Charge 25% of the total amount at purchase.
Offer the repayment option of 25% every 2 weeks.
Conduct soft credit checks, which do not affect your credit score.
Charge 0% interest as long as payments are made on time.
Klarna vs. Afterpay: How Are They Different?
While the basic business models are similar, there are key differences to consider when weighing your options.
Klarna Advantages
Here are some of Klarna’s main benefits.
Klarna offers more payment options than AfterPay. In addition to the standard six-week payment schedule, there are also options to pay within 30 days or over three installments. For larger purchases, there are financing options available for up to 36 months.
Klarna does not charge late fees for purchases under $25 paid over four interest-free installments. For higher amounts, Klarna tiers late fees — with a maximum of $24 for purchases over $200.
A wider range of retailers and more countries accept Klarna than Afterpay. Over 500,000 merchants worldwide accept payment through Klarna.
The Klarna app offers customized recommendations, price comparison, a loyalty program, and one-time card numbers that can be used for vendors that do not normally accept Klarna payments.
Klarna makes it easy to extend payment dates when required.
Afterpay Advantages
Afterpay also offers many attractive features.
There is no minimum purchase amount required to use Afterpay. While some merchants may have their own limits, Afterpay doesn’t impose any restrictions.
Afterpay conducts soft credit checks, and thus, will not report you to credit bureaus. This means that Afterpay does not impact your credit score if you are unable to fully pay for your purchase. However, it will restrict you from using the app until you’ve completed due payments.
The Afterpay app enables you to make purchases from over 98,000 vendors.
Afterpay sends payment reminders to help you stay on top of your payments and avoid late fees.
Klarna Drawbacks
While Klarna has plenty of benefits, there are some potential drawbacks to be aware of as well.
While a soft credit check won’t hurt your score, it may prevent Klarna from approving you to make purchases through the Klarna app if you have no credit or poor credit.
Any long-term financing options will involve a hard credit check, which can be detrimental to your credit score.
Klarna will report any default in payments to relevant credit bureaus, further harming your credit score.
Zero-interest payments only apply to Klarna’s basic installment plans. If you’re approved for a greater credit limit, or financing for longer payment periods up to 24 months, you will incur interest fees up to 29.99%.
Afterpay Drawbacks
As with Klarna, Afterpay comes with some drawbacks.
Afterpay charges higher late fees than Klarna. For purchases under $40, late fees may incur a maximum of 25% of the original value. For purchases over $40, Afterpay applies an initial $10 fee, which continues to accrue until the fee reaches either 25% of the original value or the maximum late fee cap of $68.
Outside its basic four-installment model, Afterpay only offers two payment plans. Customers can choose to pay monthly over six or 12 months.
Afterpay imposes a credit limit on all users, which starts at $600 and may increase over time if you demonstrate good borrowing habits.
Afterpay has less merchant availability than Klarna.
Final Thoughts
There are pros and cons to both platforms, and it’s up to you to decide which one works for you based on your individual needs.
If you’re not concerned with building credit and aren’t worried about defaulting on payments, Klarna is a fantastic option. It offers multiple payment options, comprehensive add-ons, and a wider range of use than Afterpay.
However, if you don’t have much of a credit history and want a simpler experience, Afterpay offers straightforward installment plans with zero interest that can help you make important purchases.
FAQ
Here are the answers to some of the most frequently asked questions regarding about Klarna and Afterpay.
How do Klarna and Afterpay work?
Both Klarna and Afterpay are BNPL platforms that allow you to pay for items on a payment plan of four instead of upfront. You pay the first deposit--something like 25%--and then additional payments over the following weeks. As long as payments are made on time, you do not incur interest.
How do Klarna and Afterpay make money without charging interest?
The business model for both platforms isn't based on collecting money from the consumer. Instead, the vendor pays for the service. The merchant incurs a fee every time a purchase is made via the Klarna or Afterpay apps.
Will using Klarna or Afterpay affect my credit score?
Neither Klarna nor Afterpay report payments to credit bureaus. Therefore, neither option is suitable for building credit.
Both companies may conduct soft credit checks that will not affect your credit score. If you make payments on time, using Klarna or Afterpay will not have a positive or negative effect on your credit score.
If you default on your payments, however, Klarna may alert credit authorities, damaging your credit. Afterpay does not report you to credit bureaus, but instead restricts you from making further purchases if you default on payments. Both companies will levy fees for late or missed payments.
Can I use Klarna and Afterpay at the same time?
Yes. Nothing prevents you from using multiple BNPLs at the same time. However, remember to keep track of how much you've spent on various payment plans, and ensure that you have the ability to make payments on time.
This article originally appeared on GOBankingRates.com: Klarna vs Afterpay: Key Differences and Benefits
