Why Afterpay and Klarna are bad news

3 min read

Anthony O'neal
Why Afterpay and Klarna are bad news

I'm going to be real with y'all. I'm sure you've been online shopping and go to check out and instead of your total being $150 it could be $50 a month with AfterPay or Klarna - sounds tempting. I'm telling you right now, avoid this like the plague, these buy now pay later apps are there with a catch and it's not a good one.

Let's go over what AfterPay and Klarna are and why they're bad news.

What is AfterPay?

Basically After Pay is a lender payment option, similar to the ones you'd get a car or personal loan from, that splits your total into equal payments over a few months - I hope you're already starting to see the red flags here.

It started out in Australia but made its way to the U.S. in 2018. Since then it has been getting people caught-up in the instant gratification cycle that is impulse purchases. If you see your cart total go from $150 to $50 and you can have that item today, it may seem like a no-brainer. But what they don't make obvious is that you're paying that $50 over several months - well after you could have just saved up the $150 and bought the item outright.

They don't want you to think about that though, they feed off of you seeing that lower price and feeling giddy about getting your item in store, without paying full price.

How does After Pay work?

After Pay is an app that you download, set up the digital card and connect it to your Apple or Google wallet account. When you shop online OR in person, you just have to pay 25% percent of the total price and the item is yours. That total payment is then split up between payments every two weeks for a month until the item is paid off.

The kicker with AfterPay is you can keep racking up these payment options with no consequences or limits, unless you forget to make a payment. That's when you'll get hit with the added fee that they hid in the app and fine print originally when you were so hooked on purchasing your items.

Now that we know how After Pay works, let's take a look at Klarna and compare.

What is Klarna?

I'm sure you guessed where this was heading - it's the same service as AfterPay with a different name. It's a European bank from Sweden that offers shopping freedom to those who love to impulse buy. The biggest issue with Klarna is that they have a buy now pay later option that comes with a side of a whopping 29.99% APR - which is a ridiculous percentage.

How does Klarna work?

Again, Klarna works very similarly to AfterPay with a few exceptions. They currently have three options when it comes to buying now and paying later

  • Option 1: Pay in 4
  • You can split your total into four payments after paying the first 25% of the total purchase and the rest gets paid every two weeks until the item(s) paid off
  • Option 2: Pay in 30 days
  • You can get your items right away and you have 30 days to make the full payment (this is still a red flag)
  • Option 3: 6 to 24 month financing
  • This one is terrifying. You can split up your total into monthly payment for anywhere between 6 months to two years - and this is where that 29.99% interest rates comes into play.

So Klarna is a bit different from AfterPay but they're both equally as destructive.

What stores accept Klarna and AfterPay?

Between the two apps, there are very few stores that don't offer this as a payment option - except for the small mom and pop shops which typically don't (another great reason to support and shop local, right!) Klarna specifically partners with over 250,000 stores which means there are endless places to destroy your financial situation with Klarna.

AfterPay is similar if not more versitile, most places that offer buy now pay later options use AfterPay. Stores you might shop at regularly or ones that you'd want to splurge at - Nike, Sephora, H&M, Macy's, so most of the big brand-names.

Are Klarna and AfterPay safe?

Um, yeah that's going to be a big NO from me - and if you haven't gather my stance on debt, any debt is bad debt - Klarna and After Pay included. Now that being said, they're both very legal and legit companies, but when it comes to your finances and how you manage your money, they are big red flags.

Both Klarna and AfterPay do a soft credit check on your credit every time you click "pay monthly", which means the credit bureaus are getting that report and your debt to income ratio skyrockets. Now devil's advocates may be saying to themselves, but you're making payments and when those payments are made on-time that reflects positively for your credit score - again that's going to be a hard no from me. Let me tell you why.

Avoid Klarna and AfterPay like the plague

It's not worth the cost, hassle and interest to have that kind of debt piling up for no reason. Let's say you are shopping and see a $500 coat you like, when you go to check out you see that Klarna is an option and allows you to pay it off in two years (you think you're saving money by only having to pay $150 now and you'll get your coat).

The interest rate is 29.99%, so for example, instead of a $500 coat you'll end up paying $671 for that coat because of interest.

A better way to approach this, is if you really want the coat, create a plan and a budget to save the $500, heck it might even be on sale by the time you go to buy it (that's actually saving money).

These services get you by making loans, the buy now pay later idea sound inticing, but the interest rates and late fees for missing payments end up raking up a cost you won't be able to climb out of easily.

The payments in the app are disguised as ways to have customers save money, but the payment options end up being similar to that of a loan, coupled with interest rates and a hidden fee.

When you're online shopping and you see that option, it can be enticing and a way to avoid you paying the store the full amount for an item, but whether you're shopping online or in a store, it's important reduce impulse buys - which both the Klarna app and AfterPay app thrive on.

A better alternative to Klarna and AfterPay

The best alternative is to create a budget, savings account, and stop using debt - these apps included. The problem is they are services that don't seem like debt, but they are essentially loans with interest and these services feed off of you not recognizing that.

Not to mention these services can report your data to credit bureaus and send you to collections to collect you for unpaid debt. You don't want debt collectors call you in an attempt to collect the $50 shoes you didn't just save for.

Increase your budget

You can review your budget and make adjustments for certain categories if you feel you need more spending money in that category. But this is revising your budget using the income you have, not asking for a loan - instead you're prioritizing your bills and other responsibilities first and saving towards being able to spend that extra $50 on shoes in a few months.

Let's Recap

AfterPay and Klarna are a horrible way to manage your finances and will end up hurting you in the long run. They check your credit, report to credit bureaus and ultimately feed into the instant gratification cycle of retail therapy. That pair of jeans you saw and thought you had to have, save for them, or think about it for a few days and see if you still want them, then budget extra in your clothing budget.

These apps get you in hidden fees, interest, and fine-print terms that you don't look at when you're in the heat of the purchase. The best alternative to these apps is budgeting and saving towards big purchases. Trust me when I tell you that these buy now pay later apps and services are not worth the hassle and extra money you will throw away by using them.

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