In the ever-evolving world of online shopping, payment options like Klarna have revolutionised how we purchase goods. But as a leading car finance lender at Marsh Finance, we believe in educating our customers about all aspects of financial health, including the impact of using services like Klarna on your credit score. It’s important to clarify that Marsh Finance is not affiliated with Klarna, and this article is purely educational, not promotional.
What is Klarna and How Does It Work?
Impact of Klarna on Your Credit Score
Improving Your Credit Score with Klarna
What is Klarna and How Does It Work?
Klarna, a Buy Now Pay Later (BNPL) service, offers a flexible payment solution for online purchases. Customers can choose to pay for their purchases within 30 days, split the cost into instalments, or opt for financing options. While the 30-day and instalment plans typically involve a soft credit check, which doesn’t appear on your credit report, the financing option requires a hard credit check and may impact your credit score.
Impact of Klarna on Your Credit Score
As of June 1, 2022, Klarna reports both BNPL transactions and financing agreements to major credit bureaus. This change means that your interactions with Klarna could affect your credit score. Prompt payments can positively influence your score, demonstrating your reliability as a borrower. However, missed payments can negatively impact your score, staying on your record for up to six years.
Improving Your Credit Score with Klarna
While BNPL services like Klarna perform soft credit checks for short-term payment options, they don’t typically report timely payments to credit bureaus. Therefore, using these services won’t necessarily improve your credit score. However, Klarna’s new reporting policy means that responsible use of their services can now contribute positively to your credit history.
The Risks of BNPL Services
It’s crucial to remember that BNPL services, including Klarna, don’t offer the same protections as credit card transactions. Unlike credit cards, Klarna transactions aren’t covered under Section 75 of the Consumer Credit Act, which provides protection for purchases between £100 and £30,000. Additionally, while convenient, BNPL services can lead to overspending and accumulating debt, which can negatively impact your financial health and credit score.
Making Smart Financial Decisions
If you’re considering using Klarna or similar services, it’s essential to assess whether saving up for an item might be a better option. Managing BNPL payments effectively can be a good exercise in financial discipline, but it’s crucial to avoid accumulating debt that could harm your credit score and affect future borrowing, such as car finance.
Your Partner in Car Finance
At Marsh Finance, we’re dedicated to helping you navigate the financial landscape, whether you’re looking to improve your credit score or apply for car finance. Our tools, like the car finance calculator and our 30-second pre-approval process, make understanding and applying for car finance straightforward and stress-free. Plus, our car marketplace offers an extensive selection of vehicles, allowing you to find and finance your dream car in one place.
Key Takeaways
Using Klarna can impact your credit score, especially with their recent policy changes. While Klarna and other BNPL services offer convenience and flexibility, it’s important to use them responsibly. Remember, maintaining a healthy credit score is crucial, especially when considering significant financial commitments like car finance. At Marsh Finance, we’re here to support your financial journey every step of the way. 🚗💡📊💳
Finance is subject to status
Representative Example
Rates from 12.9%
Representative example: borrowing £10,000 over 60 Months with a representative of 23.0% APR, an annual interest rate of 23.0% (fixed) and a deposit of £0.00, the amount payable would be 59 repayments of £269.58 per month, with one final repayment of £279.58 (which includes the option to purchase fee of £10.00), with a total cost of credit of £6,184.80 and a total amount payable of £16,184.80. Marsh Finance Limited are a lender, not a broker.
Marsh Finance Limited are a lender, not a broker.
This is for illustrative purposes only and is not a quote or an offer of finance.