Author: Christopher Vasey
Graphics: Michella Yuan
Buy now, pay later offers convenience and flexibility, but Klarna blurs the line between help and harm.
Household debt in the United States has increased to about $18.39 trillion in the second quarter of 2025. This is an increase of $185 billion in just one quarter. With rising credit card debt and cost of living, many people are turning towards other short-term loan options besides credit cards. One of the most popular options is Klarna.
What is Klarna?
Klarna is a “Buy Now, Pay Later” service that allows customers to delay payment on almost anything. The appeal to Klarna is that it offers financial flexibility for customers and makes the checkout process easier for merchants. When checking out online, instead of paying immediately, customers have two interest-free options: they can either split their purchase into four payments, one every two weeks, or customers can choose to delay their payment for 30 days. However, these payments will only be interest-free if the customer makes their payment on time. Klarna sounds very similar to a credit card; however, it is very different because instead of opening a line of credit, it opens a loan. So, every single purchase using Klarna is technically opening a small loan in your name. Merchants prefer Klarna because Klarna is taking on the risk of their customers defaulting or missing payments on their loans. However, Klarna is currently losing money because customers are not paying off their loans.
Why is it Financially Irresponsible?
One of the main problems with Klarna is that it encourages its customers to overspend. By making a $100 item sound like it’s only $25, Klarna’s customers are more likely to live above their means. By living above their means and using “Buy Now Pay Later” services, it only delays the consequences of irresponsible financial decisions and makes it harder to eventually get out of debt. There have been instances where Klarna has altered payment plans to increase spending. And unlike a credit card, Klarna also doesn’t consistently build its customers’ credit scores. This means their customers are taking on the risk and responsibility without the benefit of a credit card.
Klarna also attracts a different customer base than credit cards. Since Klarna is not a formal credit card, they are not required to run a hard credit check. This leads to Klarna’s customer base being many people with either bad credit scores or no credit history, who couldn’t get approved for credit cards. This customer base is then what leads to Klarna losing money every quarter.
However, Klarna is reporting operational profitability in recent quarters. This means that its core business is profitable before taking taxes and interest into account. Operational profitability means that their “Buy Now Pay Later” model is fundamentally working, even if they aren’t profitable yet. As Klarna scales and brings their costs under control, being fully profitable is very realistic. So, Klarna is still losing money but they are rapidly expanding and approaching profitability.
What are the Benefits of Klarna?
Although services like Klarna may not be the best decision, it does have their benefits if you pay back on time. It offers great flexibility that you can’t get with a credit card. For example, take the “Pay in 4” option: if you have a big purchase like a TV or furniture, as long as you make payments on time, you can pay for it over 6 weeks with zero interest.
The Klarna app is also very useful for helping customers track their spending and payments. It very clearly shows the user all upcoming payments, due dates, and balance in one place. For people who have struggled with credit cards in the past, they may appreciate that it’s easier to track than traditional credit cards. Klarna has also helped merchants, as their delayed payments have boosted sales, while Klarna bears the responsibility of customers missing payments.
Should You Use Klarna?
If used correctly and responsibly, Klarna can be very useful. The app shouldn’t be used to pay for small items like a meal, but Klarna can be used for bigger purchases like furniture or appliances you may not be able to purchase all at once. If you are good at managing your money, Klarna may be an ideal option for you. However, if you tend to be financially irresponsible and have a history of missing payments on past credit cards, you should stay away from Klarna.
Take-Home Points
- Klarna is a big part of the rising US consumer debt.
- Klarna’s “Buy Now Pay Later” plans make debt feel more manageable.
- Used responsibly, Klarna can be a flexible and convenient way to pay.
- Klarna appeals to customers with poor credit history.