Do you have Stockholm Syndrome with your credit card company? Klarna Canada is the new Buy Now Pay Later plan here to rescue you from the clutches of traditional credit. They want to make it easier for you to get what you need, when you need it, without breaking the bank or punching your credit score in the stomach. 

Klarna offers stress-free purchase financing online and in-store without an application or a hard credit check. Pull up a chair, you should sit down for this: they don’t even charge interest or fees.

Does that sound too good to be true? Here’s everything you need to know about Klarna Canada, how it works, and if it’s a good idea. 

What is Buy Now Pay Later (BNPL)? 

Buy Now Pay Later (BNPL) is a type of personal installment loan specifically for purchases. It allows you to break down the cost of an eligible purchase into several smaller payments that you make over a specific period of time. The repayment term can be as short as 6 weeks, or as long as a few years, depending on the provider and the plan you choose. 

Most Buy Now Pay Later providers charge hefty fees, pull a hard credit check, and report to the credit bureaus. Some even charge interest in addition to fees. Despite the cost, BNPL plans have been growing in popularity as more consumers demand alternative payment options to fit their needs and budget. 

So who are these BNPL providers? There are several stand-alone companies that provide this service, but in reality, you can find a BNPL plan in your own wallet. Several Canadian credit cards now offer a built-in BNPL feature on select cards for eligible purchases.  

Canadian credit cards that offer BNPL include, but are not limited to: 

Buy Now Pay Later companies in Canada include, but are not limited to: 

Read More: The 6 Best TD Credit Cards in 2022

Read More: The 7 Best Visa Credit Cards in Canada

Read More: The Top 10 Mastercard Credit Cards in Canada

About Klarna Canada

Klarna is a financial technology (Fintech) company from Stockholm, Sweden. The company was founded in 2005 to make it easier for people to shop online. Almost two decades later, Klarna now offers financing plans at the point of sale for in-store purchases too.

Today, Klarna is a retail bank that provides flexible purchase financing options to over 147 million active users in over 45 different countries. Despite several other big players in this space, Klarna is exploding in popularity. They've already partnered with almost half a million merchants around the world and process over 2 million transactions per day. 

Some of the world’s biggest brands have partnered with Klarna like Adidas, Sephora, IKEA, and even Expedia. Now, they’ve set their sights on the Canadian market. In February 2022, shoppers can now access Klarna payment options at their favourite Canadian retailers like Frank and Oak, Harry Rosen, and more. 

Klarna opened an office in Toronto and plans to hire 500 local tech professionals by 2025. Next, they want to open offices in Quebec and Vancouver as well. The aggressive move into the Great White North is the answer Canadians have been looking for; out-of-the-box financial solutions to fit their unique needs. 

Klarna’s market research revealed that half of Canadians want more flexible payment options; not just online, but at the checkout counter too. Klarna Canada and Moneris, a debit and credit card payment processing company, have come together to make stress-free payment options even more accessible. 

With Klarna, you can choose an interest-free payment plan at the point of sale. No time-consuming applications, interest charges, or financing fees. How does that even work, and what’s the catch? 

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How do I use Klarna in Canada?

Currently, the only Klarna payment option available to Canadians is their flagship “Pay in 4” plan. If your purchase is eligible for Klarna Pay in 4, that option will be available to you through the point-of-sale terminal, like a debit machine, or the checkout page online. To opt-in, simply select the option to Pay With Klarna, enter some information about yourself, and your debit or credit card information.

You do not need to fill out and submit an application, and there is no hard credit check to worry about either. The payment information you need to provide is no different than what you are used to providing when you shop online. Just enter your debit or credit card information and follow the prompts.  

You make the first of four payments directly to the retailer upon checkout. Then, Klarna pays the retailer the remaining balance on your purchase. Finally, you repay Klarna in 3 equal payments that are automatically charged to your debit or credit card every 2 weeks. 

But what if you purchase something online, and it doesn’t ship before the next payment is due? No worries. Klarna won’t process the next installment payment until your order has been confirmed and shipped. 

How do Klarna payments work? 

Payments are never a surprise because Klarna sends a notification a few days before each installment payment is due. As long as you don’t miss a payment, you won’t pay any interest or fees. Each installment payment is automatically charged to the debit or credit card you provided at the time of purchase. 

What if I don’t pay my Klarna bill?

According to Klarna Canada, they won’t charge interest or fees as long as you make the payments on time. So what happens if you bounce a payment? 

Turns out, Klarna won’t even charge for a missed payment. If the scheduled payment fails because of something like insufficient funds or there’s no more room on your credit card, Klarna will try again at least 2 days later. If the second attempt fails, Klarna will add the missed payment to your next scheduled payment. 

Klarna will send a notification that your payment failed so you know what’s going on, and so that you can prepare for a double payment in two weeks. Keep in mind, you may not be able to use Klarna for new purchases until your account has been paid up to date. 

Don’t miss payments if you can avoid it! If you continue to miss payments, or the remaining balance is not settled by the due date on your last reminder, it could be sent to a third-party collection agency and affect your credit score

What are my options if I can’t pay my Klarna bill on time? 

If you know in advance that you cannot pay your bill on time, you can extend the due date. Open the Klarna app, go to Payments, select the purchase or statement you would like to extend, select Payment Options, then Extend Due Date and follow the prompts. 

Yes, you can extend your due date. When you extend the due date, all other scheduled payments will automatically withdraw from your account every 2 weeks from the new due date you have selected. 

Klarna understands that you might have financial difficulties. If you are experiencing a financial hardship, contact the Klarna customer service team immediately. They will work with you to keep your account in good standing. 

Read More: What is Financial Anxiety and How You Can Control it in 2022

Will Klarna Canada hurt my credit score? 

Yes and no. There is no impact on your credit score to use Klarna in Canada because they do not perform a hard credit check. But if you mismanage the repayment plan and your outstanding balance is sent to a collection company, that could have a negative impact on your credit score

Even if Klarna does not report missed payments or a delinquent balance to the credit bureaus, the collection company will register the bad debt as a Public Record on your credit file. Public Records account for up to 10% of your credit score and could have a significant negative impact depending on your financial situation. 

For example, if you are newer to credit or have a lower score, a collection item will cause more damage. That’s because you have a less positive activity to counteract the bad. 

Read More: How to Build Credit for Beginners: Introduction to Credit Cards

Read More: How to Improve Your Credit Score in Canada

Do I have to apply for Klarna Canada? 

The short answer is yes, but not in the way you think. Every time you buy something with someone else’s money, you use credit. Therefore, Klarna is a creditor and every purchase you make requires a new lending decision. But if they don’t do a hard credit check, how does Klarna decide to finance your purchase? 

Well, first you have to be eligible to use Klarna in Canada. That means you must: 

  • Be a Canadian resident 
  • Be at least 18 years old 
  • Have a valid credit card, or a valid debit card and bank account 
  • Have a positive credit history
  • Be able to receive verification codes by text 

Every time you make a purchase with Klarna Canada, they do a soft credit check before they approve the Pay in 4 plan. A soft credit check does not affect your credit score, but it does give Klarna a snapshot of your situation like your credit score and other surface-level information.  

Why would Klarna decline my purchase? 

Every time you make a purchase with Klarna Canada, they will do a soft credit check before approving a repayment plan. Klarna uses information from your credit file in addition to information about your purchase in order to approve or decline the transaction for financing. 

Klarna may decline a purchase if: 

  • You have a negative payment history with Klarna
  • You make too many purchases in a short period of time (fraud prevention)
  • The amount of your purchase exceeds the purchase limit
  • You have too many other Klarna payment plans in progress

In addition to your credit score, Klarna takes other information into consideration before approving your purchase. They look at your history with Klarna like how long you’ve been a customer and your payment history, the amount of the purchase, how often you finance purchases, and if you have any previous payment plans still in progress. 

What is the minimum amount I can finance with Klarna?

Klarna Canada does not give you a specific spending limit like a traditional credit card does, nor is there a minimum purchase amount. Every purchase requires a new credit decision, which is made on a case-by-case basis. Klarna will look at your credit score and other information about your purchase before they approve a repayment plan, such as: 

  • Your payment history with Klarna, if applicable 
  • The amount of your purchase 
  • Other balances you owe Klarna, if applicable 
  • Identity verification

You can increase the likelihood that Klarna will approve your purchase by:

  • Never missing or delaying payment to Klarna
  • Maintaining a good credit score
  • Paying off previous purchase plans with Klarna before applying for a new one
  • Avoid making a lot of purchases with Klarna in a short period of time
  • Removing items to reduce the purchase total 

Read More: What is a Good Credit Score in Canada in 2022? 

Is Klarna a credit card? 

No, Klarna is not a credit card. It is a Buy Now Pay Later (BNPL) company that offers an interest-free payment plan to consumers at checkout. Klarna automatically withdraws the scheduled payments from the debit or credit card that you connect to your Klarna account. 

Where do they get that information? To opt-in for the Pay in 4 installment plan, you must enter either your debit or credit card information to link the card to your Klarna account. That is the card Klarna will use to process the installment payments.  

Having said that, Klarna does offer a Klarna Card for UK and USA residents. The Klarna Card allows shoppers to make purchases anywhere Visa is accepted, even with retailers that are not partnered with Klarna. 

With the Klarna Card, users can access the same interest-free payment plans no matter where they shop. At the time of writing, the Klarna Card is not available in Canada. 

How do I keep track of my Klarna purchases? 

You can see all your Klarna Canada payment plans in the Klarna app. Go to Payments and select the purchase to see the details of your payment plan. From the app you can also get upcoming payment notifications, track balances owing, make payments, and manage your account. 

Can I pay off my Klarna plan early? 

Yes! You can make a payment ahead of schedule or pay the full balance off early anytime you want and without any penalty fees. Open the Klarna app, go to Payments, and select the purchase or statement you would like to pay. Then, select Payment Options and follow the prompts. 

What credit cards can I use with Klarna? 

Klarna is compatible with most debit cards from major Canadian banks, as well as all major credit cards. However, Klarna is cannot be used with: 

Other Klarna Canada perks

Klarna Canada doesn’t just offer free and easy Buy Now Pay Later plans. You can access other perks through the Klarna app too. 

Klarna scours the internet for all the best deals and discounts, and puts them all in the app for you. You can also track the delivery status of your purchases, as well as the products you have returned. 

If you want to shop with a particular retailer, but aren’t sure if they’re a Klarna partner, you search for them within the Klarna app. 

Klarna offers a Buyer Protection Policy for users. You only have to pay for what you actually receive and keep. If you didn’t receive an item, it's defective, or you need to make a return for any reason, you can report it in the app and Klarna will automatically pause your payments until the issue is resolved. 

When a merchant processes a return, Klarna will update your payment plan and issue a refund for any excess payments, if applicable. 

What are Klarna Club Rewards? 

Klarna users can join Klarna Club Rewards from within the app to access exclusive perks. It’s free to join and you earn 1 point for every $1 you spend through Klarna. You’ll also get a welcome reward when you make your first payment as a new Klarna customer.

Every 500 points unlock a special reward. You can use your Klarna points towards purchases. As a Klarna Club member, you also get front-of-the-line access to exclusive deals, custom content, and curated drops. 

You can also earn points by completing missions within the app. New missions are updated every day, allowing you to earn more points without spending more money. 

What’s the catch with Klarna Canada? 

The problem with most Buy Now Pay Later plans is the cost of borrowing. Those fees can add up in a hurry. However, that’s not the case with Klarna Canada. They don’t charge any interest or fees, even when you bounce a payment. So what could possibly be the downside? 

User experience

  • Inconsistent shopping experience: there is no defined spending limit or purchase minimum. Every purchase requires a new financing decision, which means you never know if your purchase will be approved for a payment plan or not.
  • Limited payment plan options: right now, only the Pay in 4 plan is available to Canadian shoppers. In other countries, Klarna offers several other financing options and even a Klarna Card.
  • Won’t improve your credit score: Klarna is a creditor, but doesn’t report your account and payment history to the credit bureaus. A positive payment history with Klarna won’t improve your credit score. 

Hidden costs

  • Debit card fees: Klarna automatically withdraws payments from your debit or credit card. If you don’t have a free banking plan, the bank could charge you fees for each Klarna transaction. 
  • Credit card interest & fees: If payments are charged to your credit card, you could end up paying interest if you don’t pay the balance in full by the due date. Some credit card issuers treat Klarna payments like a cash advance, which has a higher interest rate and no interest-free grace period. Payments charged to your credit card also affect your debt utilization ratio which could negatively impact your credit score too.

Your budget

  • Payments are higher: installment loan payments are significantly higher than the minimum monthly payment on a credit card or line of credit with the same balance. Klarna is a legally binding contract, and you are obligated to make each payment in full and on time.
  • Easy to overspend: any BNPL plan makes it easy to overspend without realizing it. If you finance too many purchases, you could find yourself stuck with high monthly payments you can’t afford. If you miss payments, Klarna could report them to the credit bureaus. If you default on your Klarn plan, it could be sent to a collection agency and damage your credit score. 

Klarna Canada FAQs

Is Klarna Canada legitimate?

Klarna is a legitimate Buy Now Pay Later company that is authorized to operate in Canada. You can find the full legal disclosure on their website. To date, Klarna operates in over 45 countries, serves over 147 million shoppers, and is partnered with over 400,000 merchants around the world.

What happens if I don’t pay my Klarna Canada bill?

If you don’t pay your Klarna bill, they will try to withdraw the payment at least 2 days later. Then, if the payment fails again, Klarna will add the missed payment to your next scheduled payment. If that happens, be prepared for a double the payment amount to debit your account. If that payment fails as well, Klarna will likely send your account to a third-party collection agency, which could damage your credit score. 

What is the minimum amount I can charge to Klarna in Canada?

There is no minimum or maximum purchase amount for a Klarna installment plan. Each purchase requires a new credit decision. Klarna will do a soft credit check and take that information, along with information about your purchase, into consideration. 

What credit cards can I use with Klarna?

Klarna is compatible with all major Canadian debit and credit cards. However, you cannot use American Express or prepaid credit cards with Klarna. 

Will Klarna Canada affect my credit score?

Using Klarna will not impact your credit score as long as your account is in good standing. They do not pull any hard credit checks or report your account to the credit bureaus. However, Klarna could report late or missed payments. If Klarna sends your account to a third-party collection agency, that could damage your credit score. 

What is BNPL?

BNPL stands for Buy Now Pay Later. It is a type of personal installment loan specifically for purchases. BNPL providers allow you to break down the total cost of a purchase into a series of equal scheduled payments that you make over a specific period of time. Many BNPL plans require a hard credit check, report to the credit bureaus, and include fees, interest, or both. 

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