Honestly, good. As the article mentions, this type of company (buy now, pay later) is designed on the premise that you won't pay it off and end up with a ridiculous interest rate.
Honestly, good. As the article mentions, this type of company (buy now, pay later) is designed on the premise that you won't pay it off and end up with a ridiculous interest rate.
This actually isn't the case. You can argue that their model is a bit predatory on impulse purchases regardless, but they most definitely do not recoup anywhere near their credit losses from late...
This actually isn't the case. You can argue that their model is a bit predatory on impulse purchases regardless, but they most definitely do not recoup anywhere near their credit losses from late fees. The late fees are low, all things considered, and it pretty quickly gets shipped out to collections (so - debt collectors getting any interest and leftover principle)
There's no cost to use Klarna — as long as you pay on time.
If you fail to make a payment for 10 days after its due date, you will pay a late fee of up to $7. This fee won't exceed 25% of the installment payment amount.
How Klarna actually makes money is merchant fees - very high merchant fees, up to 10%, which is waaay higher than the interchange on any credit card, which after payment processor fees tends to be more like 3%.
Why would merchants pay Klarna so much of their sale? Higher conversion rates. The idea is that the items in a customer's cart are much more likely to become items in a customer's shipping notification if they can do it in 4 payments, and 90% of $100 is a lot more than 97% of $0.
Now, that's still arguably predatory - why would this boost conversion rates if not because those consumers probably shouldn't be buying those items.
But there's no doubt - Klarna would very much prefer their customers to pay them back, on time. You can look at their financials and their credit losses are pretty brutal, actually.
Thank you for the additional information. I've never used them before (I did use Affirm once) so I guess I had the wrong impression of them based on the article. After doing some more, the quote...
Thank you for the additional information. I've never used them before (I did use Affirm once) so I guess I had the wrong impression of them based on the article.
After doing some more, the quote (I assume from their website?) is only for certain payment plans. They also offer financing that is more in line with traditional store credit cards. I'm guessing that most of their business is based around the pay in four installments, which works as you described, and is what they are known for.
Honestly, good. As the article mentions, this type of company (buy now, pay later) is designed on the premise that you won't pay it off and end up with a ridiculous interest rate.
This actually isn't the case. You can argue that their model is a bit predatory on impulse purchases regardless, but they most definitely do not recoup anywhere near their credit losses from late fees. The late fees are low, all things considered, and it pretty quickly gets shipped out to collections (so - debt collectors getting any interest and leftover principle)
How Klarna actually makes money is merchant fees - very high merchant fees, up to 10%, which is waaay higher than the interchange on any credit card, which after payment processor fees tends to be more like 3%.
Why would merchants pay Klarna so much of their sale? Higher conversion rates. The idea is that the items in a customer's cart are much more likely to become items in a customer's shipping notification if they can do it in 4 payments, and 90% of $100 is a lot more than 97% of $0.
Now, that's still arguably predatory - why would this boost conversion rates if not because those consumers probably shouldn't be buying those items.
But there's no doubt - Klarna would very much prefer their customers to pay them back, on time. You can look at their financials and their credit losses are pretty brutal, actually.
Thank you for the additional information. I've never used them before (I did use Affirm once) so I guess I had the wrong impression of them based on the article.
After doing some more, the quote (I assume from their website?) is only for certain payment plans. They also offer financing that is more in line with traditional store credit cards. I'm guessing that most of their business is based around the pay in four installments, which works as you described, and is what they are known for.
Nerdwallet has a good breakdown of their different plans.
Regardless, I think it's still predatory in that it goes after people who can't get traditional credit cards because they have bad credit.