Klarna vs PayPal Pay in 3

Klarna and PayPal both offer a way to split a purchase into three interest-free instalments, and both are among the UK's main buy now pay later firms¹. PayPal Pay in 3 lets you split the cost of purchases over three interest-free instalments¹. Klarna's Pay in 3 does the same, splitting purchases into three interest-free instalments².

The two are not interchangeable. They are sold differently, they check your circumstances differently, they charge different late fees, and they sit under different regulatory arrangements. Klarna and PayPal offer both regulated lending products and unregulated buy now pay later products³, which means the protection attached to a plan depends on which product you actually used.

This page sets out how each one schedules repayments, what it costs when something goes wrong, who can use it, where you can pay with it, and what happens to your credit file and your right to complain.

How repayments are split and scheduled

Both products divide a purchase into three instalments, and neither charges interest if you pay on time. The difference is in the timing and in what else the provider offers alongside.

PayPal Pay in 3 splits the cost of purchases over three interest-free instalments¹. Klarna's Pay in 3 splits purchases into three interest-free instalments². Klarna also offers a Pay later option, which asks you to make the full payment 14 or 30 days after shopping, depending on the retailer⁸. Klarna's Pay Now option, rolled out to the majority of UK retailers in 2022, lets customers pay immediately and in full wherever Klarna is available².

Buy now pay later schemes generally offer interest-free credit at the checkout, allowing you to spread the cost of a purchase over a series of repayments⁹. That is the core of both products: no interest, provided the schedule is met.

Klarna and Clearpay are two of the main short-term BNPL providers offering payment after 30 days or over three or four months⁴. Klarna has also introduced new wording for retailers to use at the checkout, which it says will make it absolutely clear that BNPL options are credit products with consequences for missed payments².

Fees and charges, including late payments

Neither product charges interest. The cost of missing a payment is where the two diverge most sharply.

Klarna adds a £5 late payment fee for any payment made more than seven days after the due date, capped at two late payment fees per order⁴. Missed payments can also affect your ability to use Klarna². Klarna's regulated Financing product, which some retailers offer for higher-value purchases, no longer charges late fees for missed repayments².

PayPal does not charge late fees for agreements made after 30 September 2021⁵. That does not make a missed payment costless: PayPal says your credit records may be affected⁵.

For context, other providers in the market charge differently. Clearpay adds a late repayment fee of £6 for each late instalment and a further £6 if the payment is still outstanding seven days later, with charges capped based on how much you have borrowed⁴. Late payments to Laybuy and Clearpay are penalised with extra fees⁸.

If you miss payments, fees can mean you end up paying more than you would have if you bought something upfront¹⁰. Some organisations may charge you fees for late payments¹¹.

Who can use them: eligibility and credit checks

Both providers check your circumstances before granting credit, but neither runs a full hard credit search for a standard Pay in 3 plan.

Most of the big providers, such as Klarna, PayPal and Zilch, only run soft credit checks⁶. Klarna uses soft searches with credit reference agencies, which do not affect your credit rating². PayPal runs a soft check if one is needed⁵. Credit is granted on a case-by-case basis following an eligibility check².

Klarna performs what it describes as robust checks on every purchase, and shoppers can now share income and spending data from their bank accounts to confirm they can afford future repayments². That is an affordability check rather than a credit check, and it is optional.

A soft check leaves a record that you applied but does not affect your credit rating. A hard check, which is what a lender runs for a loan or credit card, does. If you want to understand how searches and reports work, see credit scores and credit reports.

Klarna has also moved into current-account-style products. Its Klarna balance is a digital wallet that lets customers store e-money, add or withdraw funds, and earn cashback on certain Klarna purchases². The Klarna Card offers debit and credit options, plus cashback for members². PayPal, meanwhile, offers a debit and credit card to PayPal Credit users, letting them spend their credit in-store rather than online¹.

Where you can pay with each one

Klarna, PayPal and Clearpay are the UK's main three BNPL firms³. BNPL is offered through many providers including Klarna, Clearpay, PayPal and Amazon¹³.

Klarna works through a single button at the checkout alongside the other payment methods offered by the retailer, with the scheme chosen after selecting Klarna². That means you do not pick Pay in 3 or Pay later until you have already chosen Klarna as your payment method.

PayPal is accepted more widely as a payment method in its own right. You can use PayPal to make payments online, and it is one of the payment options alongside Apple Pay and Google Pay at some banks¹⁴. PayPal is an e-money platform and is treated differently from a bank⁷.

The Klarna Card is a virtual card by default, with a physical card only available with membership². That matters if you want to use Klarna in a shop rather than online. PayPal's cards cover payments online or in-store and are also covered by chargeback¹.

Missed payments and your credit file

This is the section where the two products behave most differently, and where the consequences last longest.

Klarna started reporting BNPL borrowing to credit reference agencies in June 2022, in a bid to improve the visibility of shopping debt¹⁵. Klarna reports existing, late and unpaid balances to Experian and TransUnion, making them visible on your credit file⁹. Earlier reporting suggested Klarna's Pay in 3 and Pay in 30 plans did not leave a trace on your credit report¹⁰, but that changed as reporting was introduced.

PayPal says your credit records may be affected if you miss a repayment⁵.

If you stop payments without agreement, the provider and credit reference agencies count this as a missed payment, recorded on your credit file, and several missed payments put your account at risk of defaulting¹⁶. If you miss one or two payments, reminders are sent; if you catch up, no further action should be taken and the missed payments may not be recorded on your credit file, though interest and charges including late payment charges will be added¹⁷.

There is a further consequence with Klarna: if you default, it can charge the outstanding balance on any card it has for you⁸.

Protection and complaints: your rights with each

The protection you get depends on which product you used, not on which brand you used.

PayPal is covered by the Financial Ombudsman Service like any other authorised financial organisation in the UK⁷. Klarna is regulated as an electronic money institution, so customers can take complaints about a Klarna balance or debit card functionality to the Financial Ombudsman Service². Klarna has also introduced its own complaints adjudicator for customers who are not happy with how their complaints are handled².

For buy now pay later complaints generally, the first step is the company involved. If it does not send a final response within eight weeks, or the response is unsatisfactory, the complaint can go to the ombudsman¹⁹. Complaints can be made online or over the phone²⁰, and a complaint can be brought directly or through someone speaking on the complainant's behalf²¹.

PayPal has its own dispute resolution process, which may assist you in getting your problem resolved²². PayPal also has a buyer protection scheme if an item is not delivered or not as described²³. If you paid via PayPal, you have Buyer's Protection, which allows you to request a refund²⁴, and you can open a dispute under it online or via the app²⁵.

There is a catch worth knowing. Using your credit card with third-party payment systems can mean you lose important Section 75 protection on items costing more than £100, and this includes PayPal, Google Wallet, buy now pay later schemes such as Klarna and Clearpay, and third-party sellers on Amazon²⁷. If you use your credit card with third parties such as PayPal, Google Checkout or WorldPay, you do not have this joint liability protection²⁸. For more on this, see Section 75 on loans, car finance and point-of-sale credit.

Klarna has said it would cancel the debt if something went wrong with an order⁸. PayPal's Buyer Protection covers eligible purchases made online using the PayPal debit card or credit card, bank account or PayPal balance, but not in-store¹.

What happens if you return an item

Returns do not automatically unwind a payment plan, so it is worth checking that the plan has been adjusted after a refund.

Klarna has said it would cancel the debt if something went wrong with an order⁸. PayPal has a buyer protection scheme if an item is not delivered or not as described²³, and you can open a dispute under its Buyer Protection scheme online or via its app²⁵.

If a retailer goes bust, your refund rights depend on how you paid. If you paid via PayPal, you have Buyer's Protection, which allows you to request a refund²⁴. That is a meaningful difference from paying by card or bank transfer to a retailer that later fails.

Where to get free help

If a buy now pay later plan has become unaffordable, free and impartial help is available. StepChange and National Debtline both publish guidance on buy now pay later and what to do when repayments become difficult⁴. Citizens Advice can help with an ongoing consumer problem³¹.

If you are struggling with several debts, a debt advice charity can set out your options, including whether a payment holiday or a different arrangement is available¹⁶. For more on your choices, see what to do if you can't repay a loan and buy now pay later explained.

New rules for buy now pay later schemes are planned to protect shoppers from 2026⁶. Until those rules take effect, the protections attached to a Pay in 3 plan depend on which product you used and how it was sold³.