Klarna vs a credit card

Klarna and a credit card both let you take goods home before you have paid for them, but they are different products with different rules. Klarna is a buy now, pay later provider: you choose at the checkout to pay in full, in three instalments, or within 30 days, and most of its products involve a soft credit check that does not affect your credit rating¹. A credit card is a borrowing product issued by a bank or finance company, and it can be used to buy goods anywhere, including over the phone, online or by post³.

The Klarna Card is not a credit card. It is a debit card that offers debit and credit options, plus cashback for members⁴. Klarna does provide regulated credit in the UK through its Klarna Financing and Klarna Credit Card products, which are separate from the everyday card⁴.

The biggest practical difference is what happens when something goes wrong. Paying a retailer directly with a credit card can give you Section 75 protection on purchases over £100, but using your credit card through a third-party payment system such as Klarna can break that chain and lose the protection⁵. Klarna adds a £5 late payment fee for payments made more than seven days after the due date, capped at two late payment fees per order⁶.

Klarna and a credit card: how each one lets you pay

Klarna is a buy now, pay later provider, and it has changed how its options appear at the checkout. Shoppers now see a single Klarna button alongside the other payment methods the retailer offers, with the scheme choice made after selecting Klarna¹. Klarna has also introduced wording for retailers to use at the checkout, which it says will make it absolutely clear that buy now, pay later options are credit products with consequences for missed payments¹.

A credit card works differently. You can get one from banks, finance companies and larger supermarket and store chains, and it can be used to buy goods anywhere, including over the phone, online or by post³. Credit cards typically carry higher interest rates than personal loans⁹. Store cards are a separate product again: they can only be used with a particular retail group, unlike credit cards which are widely accepted, and the interest charged can be higher than on bank loans or credit cards³.

Klarna's own membership tiers add another layer. Its Plus tier offers 0.5% cashback when you pay in full with Klarna balance, and its Premium tier offers 0.5% cashback everywhere when using the Klarna balance account⁴. Klarna balance is a digital wallet that lets customers store e-money, add or withdraw funds, and earn cashback on certain Klarna purchases⁴.

The Klarna Card is a debit card with a credit option

The Klarna Card offers debit and credit options, plus cashback for members⁴. It is a virtual card by default: you will not automatically receive a physical card, and instead you get a virtual card that you can add to your mobile wallet, with a physical card only available with membership⁴. There are no foreign exchange fees when spending abroad or in other currencies⁴.

That places it in a different category from a credit card. A debit card is a payment card connected to your bank account, allowing you to make purchases and withdraw cash using your available funds¹⁰. Purchases on debit and prepayment cards use money which is already in your bank account or loaded onto the card³. A pre-paid card works in the same way as a credit card, with the main difference being that you can only ever spend what you have put on it¹¹.

Klarna does offer regulated credit in the UK through its Klarna Financing and Klarna Credit Card products⁴. Those are distinct from the everyday Klarna Card, and they are the products where borrowing, rather than spending your own money, is the point.

Who can use Klarna: a valid card or bank account

Klarna connects to banks through open banking, which it says reaches over 6,000 banks across 20 countries¹. Shoppers can share income and spending data from their bank accounts to confirm they can afford future repayments, in addition to the robust checks Klarna performs on every purchase¹.

Most of the big providers, such as Klarna, PayPal and Zilch, only run soft credit checks². Klarna uses soft searches with credit reference agencies, which do not affect your credit rating¹. A soft check is not the same as a full application for credit, and it does not leave the mark on your file that a hard search does.

If you cannot get a standard current account, possibly because your credit rating is low or because you have not got a credit history, a fee-free basic bank account may be an option¹². Basic bank accounts come with a debit card rather than just a basic cash card, which can be used at ATMs and online¹³. You can usually open a bank account if you have leave to remain or a valid visa¹⁴.

For comparison, credit cards have their own eligibility rules. Applicants for some cards need a regular income, must not have a history of bad credit such as bankruptcy, and must not have an Individual Voluntary Arrangement or County Court Judgments¹⁵. A credit account used to build a history can be an existing credit card, overdraft, monthly mobile phone plan, or even utilities¹⁶.

Paying Klarna with a credit card or a debit card

You can pay a Klarna purchase with a credit card, but doing so can cost you protection. Using your credit card with third-party payment systems can mean you lose important Section 75 protection on items costing more than £100, and Klarna is named among the schemes that can cause this, along with PayPal, Google Wallet, Clearpay and third-party sellers on Amazon⁵.

Section 75 is the rule that lets you make a claim against your credit card provider for payments over £100⁷. You cannot apply for a Section 75 claim if you paid with a debit card¹⁷. If you paid by debit card, you may be able to make a chargeback claim instead, which enables you to dispute a card transaction and request your money back for something you have paid for¹⁸. If you paid by debit or credit card, you can ask your provider to reverse the transaction by making a chargeback claim¹⁹. If you paid by debit card, you can use chargeback however much you paid²⁰.

There is one rule that applies whichever card you use: you cannot be charged extra for using a credit or debit card¹. That does not mean every payment route is free of charges. HMRC charges a non-refundable fee if you pay by corporate credit card or corporate debit card, and no fee if you pay by personal debit card².

Klarna or a credit card: what changes when you borrow

The clearest difference is what the borrowing does to your credit file. Some buy now, pay later providers, including Klarna and Clearpay, do not leave any trace of your interest-free borrowing on your credit report²¹. But Klarna started reporting buy now, pay later borrowing to credit reference agencies in June 2022, in a bid to improve the visibility of shoppers' borrowing⁸. Klarna reports to Experian and TransUnion, so existing, late and unpaid balances can be visible on your credit file²².

A credit card, by contrast, is a credit account from the start. It cannot be in joint names: only one person is liable for the credit card debt, and an additional cardholder is not liable for it²³. That matters if you are considering a joint application, because a joint bank account normally allows two or more people to receive payments, pay by debit card, transfer money and manage the account, but a credit card does not work that way²⁴.

What happens when you miss a payment also differs. Klarna adds a £5 late payment fee for any payments made more than seven days after the due date, capped at two late payment fees per order⁶. Missed payments can affect your ability to use Klarna¹. If you default, Klarna can charge the outstanding balance on any card it has for you²⁵. Klarna's regulated Financing product no longer charges late fees for missed repayments¹.

On a credit card, the consequences run through the Consumer Credit Act and the regulator's rules. Where a customer does not respond to the firm's request, the firm must, at the end of the period specified in the request, suspend or cancel the customer's use of the credit card²⁶. If you do not agree to a repayment plan, your credit card company will stop your card²⁷.

Where to get help with a Klarna or credit card problem

If something goes wrong with a purchase, the route depends on how you paid. A card dispute is when you use your credit or debit card in person, online, or with your phone to pay for something and there is a problem¹⁰. Contact the seller first to try to resolve the issue, then raise a new card dispute with your provider if it is unresolved²⁸. You can also select the transaction you want to dispute and report a dispute, fraud or scam²⁹.

If you are struggling with repayments, free and impartial help exists. MoneyHelper offers guidance on making your money easier to manage¹². The Debt Advice Foundation provides credit advice, including on whether you need to speak to a specialist for credit card debt advice¹¹. StepChange covers credit cards and bad credit scores³⁰. Citizens Advice explains what to do if you are struggling to pay your credit card²⁷.

If you claim the use of your card was not authorised by you, it is for your bank to prove otherwise³¹. If a company you bought from stops trading or goes out of business, there are specific rules on what you can recover¹⁷. Klarna has introduced its own complaints adjudicator for customers who are not happy with how their complaints are handled¹.