Klarna and Co. – how dangerous are “smooth payments”?

Klarna and similar payment service providers are very trendy. But what needs to be taken into account so that the so-called “buy now, pay later” does not become a cost trap?

Hava Misimi

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Online shopping is already routine for many of us – we buy clothes, technology and groceries on the internet every day. What is often used are payment service providers such as Klarna, through which a purchase on account and in installments is possible.

There is an interesting trend associated with this, which I observe again and again on social networks like Tiktok or Instagram: young people who show their Klarna debts that have not yet been paid (which are sometimes in the four-digit range) in sometimes funny videos. In the comments you can read several confirmations like “I feel you”.

Has credit and consumer debt become a zeitgeist of our generation – or is it just a harmless trend? In today’s issue, I’m going to answer the questions of how payment providers actually work and what effects extended payment periods can have on one’s own finances.

How do these payment providers work and how do they make their money?

A look at the numbers shows that “buy now, pay later” providers like Klarna More and more popular will. That this is a serious development can also be seen from the fact that Apple recently announced that it would offer such a payment function for its Apple Pay service (albeit only in the USA for the time being).

Buy now – pay later: This may sound practical at first, but it is not without risk. Because the temptation to get into debt is increasing. And that kind of debt isn’t a good one: it’s consumer debt.

One reason why payment providers are so popular is certainly their ease of use. The design is hip and not reminiscent of a staid installment loan provider. The slogan «smooth payments» delivers what it promises. Simply choose between paying immediately, later by invoice or flexibly in installments. Then enter the date of birth – and off you go with online shopping.

However, if you choose to pay by installments, additional fees will apply. These are (of course) only printed in small form in the terms and conditions, which at least some of us read through in detail before we check the box to confirm. Klarna and Co. are service providers – and of course they will not process your payments completely free of charge. And this is where dangers for consumers may lurk.

So: How do these payment service providers work?

As a rule, a payment service provider handles the transaction of funds, for example when making a purchase in an online shop. The online shop operator receives his money directly and therefore no longer has any risk: all open positions of the customers are settled – by payment service providers such as Klarna. They then have to make sure that they actually get this money from their customers.

But caution is advised here, because the use of such payment service providers is usually not completely free of charge, either for the online shop or for us as the end customer.

If you miss the purchase on account, for example, you can automatically slip into the installment purchase, which is usually associated with fees and interest. The installment purchase interest at Klarna is usually 11.95 percent as a fixed debit interest. In addition, Klarna charges a fee of 45 cents per month. The effective annual interest is therefore usually 14.79 percent.

These interest rates are variable and may change at any time. Even consumer loans often have more favorable conditions than hire purchase. All in all, it can unfortunately become very expensive.

At Klarna there is another special feature: The company now also offers a physical card – and is also involved in offline shopping.

Debt can become a vicious circle

I think there’s nothing wrong with buying something on account now and then and paying after you’ve received the goods. However, the prerequisite for this is that you have already saved up the sum, can afford the part of your desire and pay the bill on time within the deadline.

Unfortunately, debt can lead to a negative cycle. Once you’re in, it’s very difficult to get out again, because you would have to save a (sometimes significantly) higher total than if you had paid everything at once at the beginning.

Ultimately, this leads to financial problems, and psychologically, too, consumer debt can have an immense impact on us. In addition, consumer goods such as fast fashion items lose value quickly.

With «good» debts, such as those incurred when buying a property, the value increases or they bring you additional income, which allows you to settle the financing, for example through rental income. Unfortunately, Klarna and Co. are consumer debts – i.e. not investments that will later pay off in monetary terms.

Side effect of unpaid bills

Purchase on account and installment payments can affect our creditworthiness, if we want to finance a property, for example. If you apply for a loan, you have to agree to the credit check at the Schufa. With every order on account or before it is processed, a request is usually made there to query the rating score.

The Schufa, in turn, is a provider of creditworthiness data – it provides information about whether a person is creditworthy or not. Each request lowers the value and ultimately leads to the credit rating being devalued. And that’s exactly why it’s so important to deal with your own finances in a really sustainable way and to establish a “long-term financial system” so that something like this doesn’t happen.

Golden rules for your next purchase

So how do you create a “long-term financial ordering system” in the Money Kondo style? There are a few practical tips for direct implementation:

  1. Make a thought: If you want to buy something new, possibly also in installments: How long would you have to work for the piece of desire? And: Is it worth this working time to you?
  2. Calculate cost per wear/use: Think about how often you wear or use the new item. Take the purchase price and divide it by the number of uses. Is the relationship right? A dress for 50 euros may seem cheap at first. If you only wear it once, the cost per wear is 50 euros. If you buy a pair of shoes for 100 euros and wear them at least 50 times, the cost per wear is 2 euros. So much lower than the dress, even if it doesn’t look like it at first.
  3. Savings Goals: Set savings goals for things that cost you dearly instead of paying in installments. This is how you learn to save money – a skill that will always get you further in life. At the same time, you have a much better feeling when you buy it because you worked it out yourself.
  4. Establish routines and budgets: Every good company keeps a balance sheet and sets budgets for individual areas of the company. Regular bookkeeping and checking can help you gain more control and overview of your finances and set realistic budgets for different categories such as fun, food, gifts, etc.
  5. Extra account for variable costs: It can be psychologically helpful for you if you create your own account for your fun budget, where you cannot go into the red. This gives you the security of not exceeding your monthly fun budget and keeping better financial control.


Payment service providers like Klarna are neither bad nor good. It brings advantages for online shops and buyers because it minimizes their risks, but also disadvantages – especially for customers. It is important how you deal with it yourself. Ultimately, you make the decision about the payment method yourself. Installment payments may be practical for consumer goods, but they can cost you your money and your inner peace.

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