Buy Now Pay Later and How it Works

Klarna and Clearpay are both financial services that offer "buy now, pay later" (BNPL) solutions. These services allow consumers to make purchases immediately and defer payments, often without interest. Here's a detailed look at how each service operates:


  1. Service Options: Klarna provides multiple payment options:

    • Pay Later: Customers can pay for their purchases within 14 or 30 days after the shipment of their goods, with no interest or fees.
    • Pay in 3 or 4: This splits the total cost into three or four equal payments, charged every two weeks or monthly, usually interest-free.
    • Financing: For larger purchases, Klarna offers a financing option where customers can spread the cost over 6 to 36 months with interest.
  2. How It Works:

    • When checking out at an online store that partners with Klarna, customers choose Klarna as their payment method.
    • They provide necessary details (like contact and payment information). Approval is instantaneous in most cases, depending on a soft credit check.
    • Klarna pays the retailer upfront, and the customer pays Klarna back according to the chosen payment plan.
  3. User Experience:

    • Klarna offers a mobile app where users can manage their payments, receive reminders, and even handle returns easily.
    • Klarna also provides buyer protection, which ensures customers are not liable for faulty or undelivered goods.
  4. Merchant Benefits:

    • Merchants receive immediate payment from Klarna, even though the customer pays later, reducing merchant risk.
    • Klarna assumes the credit and fraud risks associated with the transactions.


(known as Afterpay outside the UK)

  1. Payment Structure:

    • Clearpay typically divides the purchase amount into four equal installments, due every two weeks.
    • The first payment is made at the time of purchase, and the remaining three are deducted automatically from the customer's chosen payment method.
  2. How It Works:

    • At participating retailers, customers select Clearpay as their payment option during checkout.
    • Customers must provide payment details and consent to a soft credit check to verify their eligibility.
    • Once approved, the first installment is charged, and Clearpay schedules the remaining payments.
  3. User Experience:

    • Clearpay also offers an app to track payments, due dates, and spending limits. Customers can pay early if they choose.
    • The service includes automatic payment deductions, which can help avoid missed payments but may result in fees if the account has insufficient funds.
  4. Merchant Benefits:

    • Similar to Klarna, Clearpay pays the merchants upfront and manages customer payments, thereby reducing risk for merchants.
    • It also handles the assessment of customer creditworthiness and collects payments, including dealing with late fees.

Credit Considerations and Risks

  • Credit Checks: Both services perform soft credit checks that do not impact credit scores. However, missed payments can lead to debt collection efforts and affect credit ratings.
  • Fees: Typically, there are no fees for consumers if payments are made on time. Late payments, however, can incur fees and penalties.

Both services offer flexibility and can enhance purchasing power, but it's important for consumers to manage their finances carefully to avoid overspending and accruing debt.