Warning for shoppers as major buy now, pay later firm to start charging late fees – check if you're affected | The Sun
A MAJOR buy now, pay later firm is introducing late fees for shoppers within weeks.
Klarna customers in the UK will have to start paying a £5 fee if they miss payments.
The buy now, pay later service lets you spread the cost of a purchase and is available as a payment option at many online retailers.
It can be handy when used responsibly, but concerns have been raised in the past about the amount of debt people are racking up in this way.
The new late fees are set to kick in from March 16.
Previously, Klarna didn't issue any penalties for missed payments, but they may affect your credit score.
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Shoppers will have to pay the fee after a seven-day grace period, and a minimum of four reminders will be sent before the customer is charged.
You won't get more than two fees charged per order, so if you missed multiple payments, you couldn't be charged more than £10.
No further fees will be charged if you miss two payments.
The late fees are capped at 25% of the cost of your order on lower value orders.
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For example, if you buy something for £10, the late fee will be capped at £2.50.
No interest will be charged on missed payments.
While the late fee specifically won't be reported to credit agencies, as of last year Klarna is one of the firms which does report certain data.
Klarna began reporting UK consumer purchases paid on time, late payments and unpaid purchases for Pay in 30 and Pay in 3 orders made on or after June 1 to both Experian and TransUnion.
If you do miss payments, you may have your access to Klarna reduced.
If payments continue to be missed over a period of several months, Klarna uses debt collection agencies to get in contact with customers who it can't get hold of.
The firm already has similar fees in place in other countries, including Belgium and the Netherlands.
Alex Marsh, head of Klarna UK, said: “Not charging fees feels customer-friendly, but we’re worried it drives the wrong behaviour and our data now shows that a total absence of late fees actually leads to less favourable outcomes for customers: with less reason to pay on time, customers are more likely to fall behind.
"It’s like a city with no parking tickets; it sounds great, but in practice turns out to not be so great."
A YouGov survey found 75% of British customers said they were more likely to pay on time if there was a late fee, according to Klarna.
Of course, the easiest way to avoid the fees is to keep on top of your payments.
Klarna said it will use the fees collected to fund its Customer Recovery Programme, which will be launched later this year.
Under the programme, Klarna will offer to waive 50% of the balance owed by eligible customers who have fallen behind on their payments – instead of engaging a debt collection agency.
Eligible customers will also be blocked from making any further purchases using Klarna until they've paid 50% of their overdue debt back.
Once this has been paid, Klarna will write off the debt and no further action will be taken.
It isn't yet clear which customers will be eligible for the scheme though.
Debt expert Sara Williams at Debt Camel told The Sun the introduction of the fees could be a "real problem" for consumers.
She said: "Klarna’s big selling point has always been no interest and no late fees.
"Many people use Klarna for a lot of small purchases, sometimes of essentials.
"Adding a £5 late fee per purchase to these will be a real problem for people who are already struggling.”
It comes as the firm is also launching its Autopay feature on its Pay in 30 days so shoppers can set payments to be automatically taken from their account.
Klarna will be joining other major buy now, pay later schemes which already charge fees.
Clearpay and Laybuy already charge a late fee of £6.
The news comes as The Treasury has laid out further plans to tighten up regulations for buy now, pay later firms.
BNPL services are currently not regulated by the FCA.
The proposed changes aim to reduce the risk of financial harm for around 10million customers.
Last year, lenders also began sharing BNPL purchases with credit reference agencies in anticipation of the regulation.
Concerns over BNPL schemes
Like any other form of credit, BNPL is safe to use as long as you do so responsibly.
That means clearing your balance in full and not falling behind on payments.
Debt should always be a last resort as a way to pay for anything, and you should never take on more than you can afford to repay.
Concerns around BNPL have centred around the credit checks that companies undertake before offering you the loans.
With a standard loan or credit card, lenders do a "hard check", which shows on your credit history so other companies can see what credit you've applied for.
BNPL firms have typically only carried out "soft checks" which are not as stringent, and mean shoppers could rack up loans with a number of providers, which could mean their borrowing gets out of control.
How to cut the cost of your debt
Being in large amounts of debt can be really worrying, but it's important not to bury your head in the sand.
If you’ve got credit card debts, aim to pay off more than the minimum amount on your credit card each month to bring down your bill quicker.
If you have more than one credit card and can’t pay them off in full each month, prioritise the most expensive card.
If you’ve got several debts and you can’t afford to pay them all, it’s important to prioritise them.
Your rent, mortgage, council tax and energy bills should be paid first because the consequences can be more serious if you don't pay.
If you’re struggling to pay your debts, it’s important you get advice as soon as possible before they build up even further.
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Groups like Citizens Advice and National Debtline can help you prioritise and negotiate with your creditors to offer you more affordable repayment plans.
Do you have a money problem that needs sorting? Get in touch by emailing [email protected]
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