With store programs like shopping layaway becoming less and less common, companies like Klarna are filling the gap and allowing customers to pay off purchases over time. The company gives you the ability to buy the products you want today without the need to pay all the money upfront—and all for no additional cost. Here’s everything you need to know about Klarna.

What is Klarna?

Klarna is an e-commerce company helping consumers buy now and pay later with several different low or no-cost options.

When you purchase through a retailer that accepts Klarna, you’re able to buy right away and pay for your item later. Klarna has three different payment plans to choose from—pay in installments, pay in full in 30 days or finance a larger purchase over 6-36 months.

How does Klarna make money?

Instead of charging you for using installment loans, Klarna charges a small service fee and percentage charge to the retailers you’re shopping with. Because the Klarna system helps to drive sales that might not have happened otherwise, it’s both a benefit to companies and consumers.

If you choose to finance a purchase with Klarna’s 6–36 month option, though, it will cost you interest. The current APR on this plan is 19.99 percent with a minimum charge of $2.00.

How does Klarna work?

When you go to a retailer that offers Klarna, the option is available on the checkout screen.

Screenshot of the Klarna app showing how a user can pay in installments with no fee

Select the option, and then select the payment plan you’d like to use. Klarna currently offers three ways to buy now and pay later. The most popular option is the installment plan. This option is completely free to use and splits your payments up into four installments due every two weeks after your item ships. The first payment is due on the day your item ships (not the date of purchase).

Screenshot of the Klarna app showing an example installment payments.

Your other two options are to pay in full in 30 days or finance the item out over 6-36 months. The 30-day payment option is also interest-free, but the longer-term financing does come with interest. Unlike the other options, Klarna does report this longer-term financing plan to credit bureaus, so late payments could have a negative impact on your score.

Who accepts Klarna?

Thousands of online retailers work with Klarna, and the list continues to grow. The company works with small, medium and large brands across a wide variety of different industries. A complete list of the available stores can be found on the company’s website.

Should you use Klarna?

The decision of whether or not to use Klarna depends on your financial situation, your goals, what your buying and whether the merchant offers the service. Remember, two of the three payment plans are interest and fee-free, but the longer-term financing does come with an additional charge.

Pros of using Klarna

  • Purchase products now without the need to have all of the money upfront
  • No interest charges or fees on two of the three payment plans
  • Can be great for people needing to make a purchase before a paycheck arrives
  • No impact to your credit with the shorter-term financing options

Cons of the pay later system

  • Could develop bad spending habits of buying on credit
  • Late fees are accessed if you don’t make your payments on time
  • Not accepted at all retailers
  • Requires you to stay up to date on multiple scheduled payments

Other installment plan services to consider

Klarna is not the only ‘buy now, pay later’ company on the block allowing consumers to make installment payments on purchase. Similar companies to consider include Afterpay and Affirm. Also, credit card companies and traditional lenders can offer options to buy now and pay later. These options are generally more expensive, but the options can also be used for much larger purchases.

The bottom line

Klarna does bring a lot of flexibility to the purchase process by allowing you to buy items now and pay for them later. While this is incredibly convenient, it could encourage consumers to spend more than they can afford. But, if you use the program responsibly, you’ll have access to an affordable payment plan without added fees or interest.