Total: $68 or 4 interest-free payments of $17.

If you know, you know. 

And $17 later sounds a lot better than $68 right now. 

Maybe you want to split the cost between paychecks. Or you’re waiting on a Venmo from a friend? That friend. Whatever the case, you pick Buy Now, Pay Later. 

And of course—as most of us do—you don’t read the terms and conditions 🍷

‍If you’re wondering wtf you actually signed up for with this kind of thing, it’s called a BNPL service.

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BNPL meaning (???)

BNPL stands for Buy Now, Pay Later. BNPL companies include  AfterPay, Affirm, and Klarna. They’re the key players, but more and more banks and payment providers, like Paypal and Apple, are offering similar services.

It’s everywhere…

How does Klarna work?

Normally if you’re buying something online, you just pay the retailer directly in full. 

But when you use a BNPL service, like Klarna, they pay the retailer, and you pay them back in bi-weekly installments. 

So you’re not saving any money, or paying more money—you’re just spreading out the cost. 

And there is no extra cost to you, so long as you make the payments on time. (You know we’re going to have a talk about this right?)

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So how does Klarna make money? 

Most Buy Now Pay Late services, like Klarna, make money by taking a percentage of the transaction from the retailer as well as through late fees.

Retailers want to work with them because customers (like you) are more likely to make the purchase with BNPL rather than paying in full. In fact,  ⅓ of BNPL users have reported increased spending. It’s basic psychology… shopping psychology 💃

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Where are the risks? Is Klarna safe?

BNPL services, like Klarna, make it easier for you to make purchases when you don’t have all the money. 

That's because you don’t have to show proof of funds or income. And unlike credit cards, you can qualify for a BNPL without passing a credit check and start racking up a bill in minutes.

                $17 over there, $50 over here, $30 god knows where…#MaterialGurl 

               And all of sudden you owe them like $400 in 6 weeks. 

                $400 that you don’t have. 

And when payment day rolls around, they either take the money directly out of your account, which could cause you to overdraft and create a bunch of fees, or they mark your payment as late. 

Many BNPL services also report late payments to the credit bureaus.

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What happens if you miss a payment? Does Klarna report to credit bureaus?

Most BNPL services charge a late fee.

But some also report the late or missed payment to the credit bureaus, which is where the real damage can happen.

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If you choose the four-payment or 30-day try-and-buy payment options, Klarna reports nothing to the credit bureaus. BUT, it also doesn’t report on-time payment history to the credit bureaus either, so you won’t build credit.

If you apply for a Klarna financing account offered in partnership with WebBank, Klarna performs a credit inquiry with two major credit bureaus — Experian and TransUnion. This credit inquiry will appear on your credit report and potentially impact your credit history and score.

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Klarna might also indirectly affect your credit. If you pay your Klarna installments with a credit card but can’t pay your credit card balance, your credit score is gonna take a hit.

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If you’d like to build your credit history, def check out Cleo Builder. It was designed to help you do that.

So. Can using Klarna hurt your credit? 

If you have a late or missed payment, yes. 

And even if you do pay back on time, there’s no positive rebound like you’d see with a traditional loan or even credit card.

In fact, 72% of users who fell behind on a payment claim their credit score has declined because of it. 

🥴 

If this is you, don’t be feel bad

This is not a you problem. It’s a BNPL problem. 1/3 of BNPL users have fallen behind on at least 1 payment. 

So you’re not alone. 

And if your credit score has been affected, there are steps you can take to rebuild it. (Keep reading, we got you.)

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It’s getting so popular, the government’s even getting involved

In 2022, almost half of American Gen Zers are expected to use a BNPL. And who can blame them? They pay a lot of money for those brand campaigns. 

But this sort of growth catches Uncle Sam’s attention.

This past December, the federal regulators at the CFPB opened an inquiry citing concerns over debt accumulation, regulatory requirements, and data collection.

That’s government code for “what is this new technology” and “it doesn’t fit into any of our existing regulations.” 

Now if they would just care this much about your student loans 🙃

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So what BNPL does what?

They’re all different, so please, if you do plan to use one, do your research. 🤓.

🚨Remember most of these BNPLs have multiple payment programs, so READ THE TERMS AND CONDITIONS (sorry *not sorry* for yelling).🚨

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If you are going to use a BNLP here’s some tips to not get f’d

📖 Read the terms and conditions so you know what you’re signing up for

✍️ Create a budget (you can make one with Cleo), so you’re not spending money you don’t have

💳 Set up auto-pay, so you don’t miss a payment

⌛ Wait a week before buying, so you don’t make a decision you might regret 

And always remember, if you can’t afford to pay the full price now, you probably can’t afford to pay the price later.

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What’s the alternative?

Well what’s your goal?

Do you literally need something now that you can’t afford? Or you looking to do some actual work on your credit score?

If you’re really in trouble we can spot you up to $100, but we’d much rather you save that for an emergency.

If it’s the credit building thing you’re after, check out Cleo Builder. It’s literally designed to help you work on your credit score.

Just download the app and type “Credit Builder” to Cleo. If you’re not super excited by this, you can still use the app for budgeting, for free.

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Enjoy this post? Def give it a share or send it along to a friend. You never know, it could make a big difference.

Big love. Cleo 💙‍