Guys, we’ve all been there: You’re scrolling through social media when you get hit with an ad for a dope shirt that you’ve just got to have. You click the link, and your heart almost stops—$100 for a shirt? That’s crazy! And you only have $25 left in your clothing budget, so you know you have to say goodbye to that shirt.
But wait—what’s that? Right underneath that “buy now” button is another button that says something like, “Pay in 4 interest-free payments of $25 with Klarna.” And you’re thinking, Heck yes! I’ve got $25 in my budget, and I’ll just roll those other three payments into next month’s budget.
Hold up. I’m going to stop you right there. Just because those split-up payments are interest-free doesn’t mean they’re a smart move. I want you to get away from that “buy now” button and hear me out on this: Buying now and paying later is a good way to be broke now and later. Klarna is not your friend, and it’s definitely not going to help you get rich.
What Is Klarna?
Klarna is an app that lets you buy something now and pay for it over time.
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It’s just one of several installment payment plans you’ve probably seen on the internet, tempting us to buy things we can’t afford right now by giving us extra time to pay for it.
Here’s a real quick history lesson so we know who we’re dealing with: Klarna started in 2005 in Stockholm, Sweden, but its parent company—The Klarna Group—didn’t form until 2014.1 But, y’all, in the past couple years, this company has exploded. And unfortunately, people are buying into it. By June 2021, the company was valued at $45.6 billion dollars.2
Klarna’s website claims to offer “shopping freedom” to its users with “flexible payments, full transparency, and free rewards.” I don’t know about you guys, but getting roped into monthly payments does not sound like freedom to me. You know what Klarna sounds like to me? A credit card. And you know how I feel about those—stay far, far away.
How Does Klarna Work?
Klarna offers a few different options for users. If you download their app, you can shop at their partner stores—online or even in person—and check out using the Klarna app to choose from one of their payment options. Here’s a breakdown of what they offer:
- Option 1, Pay in 4: Split the cost of your purchase into four interest-free payments with 25% down and the rest paid every two weeks.
- Option 2, Pay in 30 Days: Get your stuff right away and have 30 days to pay up.
- Option 3, 6–36 month financing: Klarna partnered with WebBank for this “flexible financing” option that allows you to split up your bill in monthly payments for six months or up to three years.
Honestly, I don’t like any of those options. But option three is by far the most dangerous, so we’re going to talk about that one first. Option three is Klarna’s only payment option that comes with interest—at an annual rate of 19.99%!3 Dang, that’s 20%, you guys!
Let’s do the math here. If you chose this option to take 36 months to pay for a $500 coat, you’d only have to pay about $19 a month, but you’d end up paying some $669 for that coat after three years. That’s an extra $169 you could’ve had in your pocket!
But Klarna’s Pay in 4 option is definitely the most popular—that’s the one you see all the store websites using. And while that option doesn’t collect any interest, it can collect late fees—I know y’all are smart enough to see this one coming.
If your card declines on your second, third or fourth Klarna payment, they’ll tack on a fee of up to $7 for each missed payment.4 I know, I know—$7 doesn’t seem like the end of the world. But think about it . . . if you’re late on three of those four payments for that $100 shirt, it’s now a $121 shirt. At that point, you’ve just about added a fifth payment when you could’ve just budgeted, saved up $100, and paid for the shirt all at once!
What Stores Accept Klarna?
Klarna partners with 250,000 different shops all over the world, including popular U.S. stores like Macy’s, Bed Bath & Beyond, H&M, lululemon and Sephora. That means you can use their payment options to get everything from fashion and electronics to beauty and home goods.
Here’s the scary thing—you don’t even need to download the Klarna app or go to their website to use their services. If you’re online shopping at one of these stores and then head to your shopping cart, Klarna’s Pay in 4 option is right there waiting for you. No membership necessary.
Is Klarna Actually a Better Way to Shop?
In case I haven’t made my stance crystal clear here, let me spell it out for you: N-O.
Do you know why so many stores partner with installment payment plan companies like Klarna? It’s to trick you into spending more money. Klarna brags to businesses that offering their app will increase the average store order by 45%.5 That means that the average shopper is spending 45% more—for things they can’t afford—all because they don’t have to pay for it all at once. That’s messed up!
What if, instead of spending $25 every two weeks for a $100 shirt, you saved $25 every two weeks. By the end of the year, you’d have over $600. Better yet, what if you followed Macklemore’s advice and decided to hit up the thrift shop instead of paying $100 for a shirt in the first place. I’m just saying—he made it work with only $20 in his pocket! If you brought your clothing budget down to $20 a month and pocketed the other $80, you’d have $960 by the end of the year. Long story short: Don’t sacrifice your long-term dreams for your short-term desires.
The easiest way to make smart money moves is to create and stick to a budget. I know—y’all don’t like talking about a budget, but it’s actually the best way to stay in control of your money and start stacking cash. Believe me when I tell you that Klarna doesn’t give you freedom, but a zero-based budget will.
Not sure how to get started with your budget? Let me hook you up with our free budgeting app, EveryDollar. Yes, you heard me right—this app is free. This is the app I personally use to stay in charge of my money and tell every dollar where to go. Download EveryDollar today and show your money who’s boss. Let’s get it!