- Warning: Late repayments can cause you serious money problems. For help, contact MoneyHelper.
Buy now, pay later (BNPL) is one of the most popular ways to pay for purchases online in the UK. Clearpay and Klarna are 2 of the most well-known BNPL providers out there, so how do you decide between them and what are the differences?
Sister to Aussie brand Afterpay, Clearpay has been making waves in the UK. Aimed at millennial spenders who prefer debit to credit, Clearpay is designed to offer flexible payments without the risk of getting into debt. The company assigns spending limits based on a customer’s previous spending history on the app and, importantly, charges no interest.
- Split it. Clearpay easily splits your final shopping total into 4 equal amounts, which you pay back at 2-week intervals.
Klarna was founded in Sweden in 2005 and is currently the most downloaded BNPL app in the UK. Data from Sensor Tower, explained in Finder’s BNPL report Instant hit: The rapid rise of buy now, pay later, showed that the Klarna app had been downloaded 986,000 times between January and July 2020 – that’s 688,000 more downloads than Clearpay’s app in the same time period. Klarna offers 3 different payment options:
- Pay in 30 days. Receive an invoice for your full order total with up to 30 days to pay the full amount.
- Financing. Split your payments into monthly instalments that you pay over time. (Requires a full credit check and charges interest of up to 18.9% APR.)
- Pay in 3. Spread the cost of your purchase equally over 3 months with no interest. Payments are due at the time of ordering, and then 30 and 60 days later.
- Late payment fees. Klarna charges a late payment fee of up to £5 7 days after the due date.
Compare: Clearpay or Klarna
What do the companies have to say?
How did the platforms perform in 2020?
How does buy now, pay later work?
This depends on the service you choose. With most BNPL platforms, you shop online at your favourite retailers and bag items as normal. The only difference comes when you get to checkout. Here, it’s just a case of selecting a BNPL service as your payment option, such as Clearpay or Klarna. Some retailers don’t yet offer BNPL, but most of the big brands do.
When you’ve chosen your service, you can select your payment terms. These vary from delaying the payment (by say, 30 days) or splitting the payment into as many as 6 smaller chunks, which can be paid off automatically from your bank account weekly, bi-weekly or monthly.
Do Clearpay and Klarna carry out credit checks?
Clearpay doesn’t run a credit check on you when you make an account. Instead, to make sure customers are likely to be able to make repayments, it may conduct a pre-authorisation on your nominated card, up to the amount of your first instalment.
Klarna may perform a credit check, depending on which payment method you are checking-out with. A soft credit check is performed when using Klarna’s BNPL options and your repayments will be shared to credit reference agencies (CRA), making it visible to other lenders. A hard credit check will be perfomed when applying for the Klarna card, which may affect your credit score.
What if I’m late making a payment?
As soon as you miss a payment, Clearpay will immediately stop you from making any further purchases. For orders under £24, you’ll be charged 1 late fee capped at £6. For orders over £24, you’ll also be charged an initial late fee of £6 and a further fee of £6 if the payment is not made within 7 days. For orders over £24, Clearpay’s late fees are capped and will never go higher than 25% of the order value or £36, whichever is less. Whatever happens, Clearpay has said this won’t affect your credit score. However, with the recent news that all 3 major CRAs will be including BNPL data on your credit reports from Spring 2022, it is likely that Clearpay will change its position on this.
Klarna charges a fee of up to £5 for all late payments. If you place an order valued at £20 or above, you’ll be charged £5 if you miss your payment. If your order is below £20, your late payment fee will be under £5. The fee is also capped at 25% of your order.
If you do miss your payment, Klarna won’t charge you until after a 7 day grace period and sent you 4 reminders. Until April 27th 2023, you can waive the late repayment fee by completing a financial awareness test, dubbed the ‘Never Forget’ test, in the Klarna app.
It’s important to note that Klarna reports purchases paid on time, late payments and unpaid purchases to both Experian and TransUnion, but at the moment, it does not affect your credit score. To learn more, read our full guide.
Which service is more popular?
The graph below shows Google Trends data for search interest of both Klarna and Clearpay from July 2020 compared to the previous year. As you can see, there’s really not much in it…
Why use a buy now, pay later service?
BNPL has quite a lot going for it. For starters, it can help shoppers manage large, expensive purchases by allowing the amount to be split across multiple instalments. This spreads the cost over multiple paydays, without the added interest that would apply to typical longer-term payment options.
Using a BNPL service is also a useful option if you need to order 1 item in several sizes. Shoppers can often try before they buy – return the items that aren’t the right size and only pay for what they keep.
Our verdict: Are Klarna and Clearpay any good?
Choosing between Klarna and Clearpay comes down to the payment plan that works best for you. If you want a platform that allows you to try on items you’ve bought online before you’re charged for them, Klarna’s Pay in 30 solution is probably your best bet.
For those who are paid weekly, rather than monthly, perhaps Clearpay’s 4 instalment option is the plan for you, allowing you to spread the cost of your item(s) over a longer time period, compared to Klarna’s 3 instalment option.
Regardless, it’s vital that you only sign up for BNPL services if you’re sure you can repay the money you borrow, and definitely after you’ve read the small print.
- Sensor Tower, July 2020
- Google Trends, July 2020
Popular BNPL news and reviews
Find out how to spread your purchases over 3, 6 or 12 months with Monzo Flex.Read more…
Report suggests buy now, pay later regulation could be ditchedRead more…
Klarna will start charging UK customers for late payments from March 2023.Read more…
Payment platform Square enters the buy now, pay later market with Clearpay.Read more…
Virgin Money is offering eligible customers to “buy now, pay better on terms that work for them” with its new credit card product, Slyce.Read more…
Discover more about PayPal Credit to see if it could work for you.Read more…
Buy now, pay later provider, Klarna, is set to share UK customers’ spending habits with credit reference agencies from 1 June 2022.Read more…
New buy now, pay later challenger PollenPay goes head to head with big fishes like Klarna and Clearpay to offer customers interest-free instalment plans.Read more…
Credit reference agencies have announced that buy now, pay later debt will start showing on credit reports from spring 2022. Here’s what you need to know.Read more…
Klarna and PayPal are two of the biggest names in the online payment industry. So which should you use for your next purchase? We compare the two.Read more…
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