Afterpay vs. Klarna

Updated 7th October 2020

Fashion store
  • Afterpay are the incumbent in Australia, but might Klarna be their strongest competitor yet?
  • Klarna are a European behemoth with years of experience in consumer finance.
  • Unlike other BNPL services, Afterpay and Klarna are going after the same market.

Buy Now Pay Later (BNPL) services make it easy to shop — online and in-store — without the fees normally associated with credit cards. In this comparison, we examine Afterpay and Klarna in detail, covering everything from credit limits and fees to account setup and availability so you can make an informed decision.

How Afterpay works

Founded by Nick Molnar and Anthony Eisen in 2015, Afterpay is now Australia’s most favoured buy now pay later (BNPL) service. It allows consumers to receive goods when they want them and pay off the item in fortnightly instalments. Users can shop online and in-store, with no interest on purchase costs.

Signing up with Afterpay is simple – applicants must be at least 18-years-old and register a valid debit or credit card. After that, simply provide your contact information, such as name, phone number, and home address, and confirm your account. You will receive a temporary barcode with limited funds. A pre-authorisation check on your card will determine how much you can spend on your first instalment.

Select Afterpay as a checkout option when shopping with partner retailers online or present your barcode when shopping in-store. The first payment – 25% of the total purchase price – will occur up-front, whereas the remaining payments will occur over eight weeks. Through the Afterpay app or website, you can set up your account to make automatic deductions or repay your funds manually. You cannot make payments via bank transfer, prepaid card, or BPay.

How Klarna works

Like Afterpay, Klarna is a financial technology (fintech) company that allows consumers to purchase items without paying up-front. Consumers can choose to repay the amount in four interest-free fortnightly instalments or within 30 days. You can finance larger purchases between 6 to 36 months.

With Klarna, there is no sign-up required to use the platform. However, users will need to provide a working debit or credit card, and enough information for Klarna to perform a soft credit check.

Should users decide to repay their purchase in four instalments, they pay the first one upon shipping and the remaining three automatically every two weeks. If a retailer doesn’t display Klarna compatibility, you can shop using the Klarna app, which will provide a “ghost card” number at checkout. Alternatively, you can apply for financing plans or pay 30 days after you purchase an item.

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Feature comparison

Repayment frequency

  • Afterpay: With Afterpay, your fortnightly instalments begin as soon as you ship your product. These instalments amount to 25% of the total purchase price, with the first being an up-front payment. If you miss a repayment date you can incur a late fee, plus an additional fee for missing a payment over seven days.
  • Klarna: Similar to Afterpay, users repay purchases in four instalments – but over six weeks instead of eight. If applying for financing, consumers can repay investments on a flexible month-to-month basis or design a repayment plan. You can also receive a fixed payment schedule or pay for an item in full within an allotted period.

Borrowing limit

  • Afterpay: For every transaction, you can make a maximum purchase of $1,500 and hold an outstanding account limit of $2,000. Your spending limits will be lowest upon opening your Afterpay account and remain restrictive within the first few months. Limits may also depend on the retailer you’re shopping with. You can typically only activate one order at a time, and risk limiting your spending ability if you miss a payment.
  • Klarna: When shopping with Klarna, users aren’t restricted to a hard borrowing limit. Instead, how much they can finance will depend on the results of their credit check.

Credit check

  • Afterpay: Users won’t have to undergo a credit check upon opening an account so long as they are at least 18 years of age and equipped with a working debit or credit card. For more expensive purchases, however, Afterpay may run a soft credit check.
  • Klarna: Whether or not Klarna will run a credit check depends on the retailer you’re shopping with and how much you’re looking to borrow. They're more likely to perform a credit check if you’re planning to finance a larger purchase over a longer period.

Online & offline use

  • Afterpay: With Afterpay, you can shop with over 10,000 partner retailers in-store and online. If you’re unsure about whether a retailer carries Afterpay as a checkout option, refer to the app’s Shop Directory. When shopping online, users must provide their payment information – returning shoppers can automatically access them later. When shopping in-store, simply present your barcode at the register. The entire process takes only a matter of seconds. Keep in mind that Afterpay won’t approve 100% of orders and purchases depending on your existing funds, length of use, the number of active payment plans you have, and the order value.
  • Klarna: Like Afterpay, you can shop with Klarna in-store and online, albeit a little differently. You can use Klarna as a checkout option virtually anywhere – from brick-and-mortar stores to expos and pop-up shops. Unique to Klarna is the ability to pay with the app even when a retailer doesn’t employ it as a checkout option.

Cost comparison

Account fee

  • Afterpay: There are no fees associated with opening an Afterpay account. The only costs involved are what you will need to repay and any late fees you accumulate.
  • Klarna: While there is no account fee to maintain with Klarna, it will charge a transaction fee and occasional variable fee depending on what type of financing you select.

Interest rate

  • Afterpay: There are no interest charges on Afterpay purchases.
  • Klarna: Financing plans with Klarna do charge an interest fee depending on the method of repayment you select. Month-to-month payments will set a standard interest rate, whereas a planned repayment will offer a more competitive APR. Paid in full options won’t charge any interest. However, fail to repay the amount in time, and you’ll have to chalk up interest on the entire repayment period.

Late fee

  • Afterpay: Afterpay charges a late fee of $10 and an additional $7 for missing a payment for over seven days. You can only incur a total of $10 in late fees on purchases under $40 and up to $68 on larger payments.
  • Klarna: Regardless of the plan you choose, Klarna will charge a late fee of $10.

Pros & cons

Afterpay

Pros:

  • You can shop even when cash flow is tight.
  • Every purchase is interest-free, and there is no cost of maintaining an account.
  • The application process is simple – you can shop immediately after confirming your account.

Cons:

  • You can accumulate an excessive amount of late fees – miss every payment, and you can end up having to shoulder over 20% of the original purchase price.
  • Users tend to resort to impulse shopping due to tempting interest-free terms.
  • You risk taking on more debt than you can afford.

Klarna

Pros:

  • Instalment plans won’t accrue interest or affect your credit score if you pay them off in time.
  • You can shop anywhere with Klarna, even if a retailer doesn’t offer it as a checkout option.
  • You can use American Express and Discover cards as well as Visa and Mastercard cards.

Cons:

  • Financing plans may subject you to a high-interest rate and become difficult to pay off.
  • You can’t choose your due dates on a payment plan.
  • You can’t pay for an instalment early, even when funds free up.

Which is better?

Like so many financial decisions, the answer is "it depends".

If you intend to make smaller, more frequent purchases, Afterpay may be better suited for you. Its approval process is seamless and straightforward. Should you want to make a BNPL purchase on an item with a retailer that doesn’t employ a BNPL option, Klarna can help you finance it. However, more expensive purchases can rake up high-interest rates, with the risk of incurring expensive fees on any missed payments.

Alternatives to Afterpay and Klarna

Popular competitors to Afterpay and Klarna include Zip, Humm, and LatitudePay. If you still haven't made up your mind, you can compare other options for interest-free instalment finance here.