Afterpay vs Klarna: Which is a better service?

Afterpay is known to allow users to shop now and pay later up to a maximum limit of $1,500. However, not everybody is allowed to spend up to this limit. When you sign up, you’ll be typically approved for a spending limit of $600, which may increase based on your repayment history. 

Once your Afterpay account is approved, you can make a purchase up to your spending limit with Afterpay, but you’ll need to pay 25 per cent of the amount upfront. The remainder is payable in three equal instalments, due every two weeks. You can make a payment before the due date without any extra fee charged to you.

Klarna works similarly to Afterpay. It doesn’t mention any predefined spending limit for users at the time of writing. However, it’s widely believed you can use Klarna to spend a maximum of $2,000 per transaction. Purchases on the platform are paid off in four equal instalments spread over six weeks from the date of the purchase. Like Afterpay, the first instalment equalling 25 per cent of the purchase price is payable upfront. 

Even though the maximum spending cap on Klarna is slightly more than Afterpay, the service provider only approves you for one transaction at a time (which is the same as Afterpay). There’s also no guarantee that you’ll be allowed to spend up to your maximum account limit for every transaction you make, whether you use Klarna or Afterpay. The amount you are authorised depends on various factors, including the length of time you’ve been using the service and your repayment history.

At the time of publishing, many BNPL companies, including Afterpay and Klarna, typically begin by granting new users smaller spending limits and then progressively raise the amount they can borrow as they establish a positive repayment history. Some companies, like Klarna, may carry out occasional credit checks, particularly when it’s been a year to the last credit check. While some users may appreciate the ability to borrow more over time, there is an increased risk of borrowing beyond one's means when credit limits are increased without explicit information and suitability checks. 

To promote transparency in credit services and safeguard consumer interests, the government plans to prohibit BNPL providers from automatically raising credit limits for customers who have not requested it as part of its new regulations that will recognise BNPL-based offerings as a credit product.

Some of the key features of both Afterpay and Klarna and summarised below:

Both Afterpay and Klarna allow you to buy what you want and pay for it later in smaller, fortnightly instalments. While both apps have several features similar to each other, there are some key differences that might make one service more suitable for you than the other. Besides these two popular services, you may also want to compare other alternatives like Openpay and humm to make an informed choice.

Signing up and credit checks

You need to be at least 18 years old to use most BNPL services, including Afterpay and Klarna. Signing up for either service is straightforward. All you need to do is download the respective app and provide some basic details to get started.

Klarna has a few additional checks at the time of signing up compared to Afterpay. It will ask you for identification proof and run a credit check on you before approving your account. Klarna will also perform a credit check on you when you make a new purchase, and the last credit check was done over a year ago. 

But does it matter whether or not a company runs a credit check on you? From the company’s point of view, it’s a way to ensure responsible lending, so that you are not repaying a loan that’s difficult for you to afford. 

From a user perspective, it will appear on your credit report as a hard inquiry, which will be visible to lenders that check your credit report when you apply for a credit product, like a loan or a credit card, in future. If multiple similar inquiries are listed on your file too close to each other, potential lenders could see it as a red flag because it makes you appear credit hungry.

At the time of publishing Afterpay, unlike Klarna, does not run credit checks on customers. However, it’s likely that all BNPL companies, including Afterpay, will soon need to carry out credit checks in Australia.

The Australian government has announced the introduction of new laws that will consider BNPL services as a credit product. As a result, the BNPL industry will be subject to tougher regulations, like other credit providers, including the need to carry out credit checks on prospective customers. 

Fees and costs

Both Afterpay and Klarna don’t charge any interest on payment plans. But if you miss an instalment, you’ll be hit by late payment fees on either platform.

At the time of writing, Afterpay charges a $10 fee if you miss an instalment and an additional $7 if the payment remains due for another week. However, the total late fee you may be charged is capped at 25 per cent of the purchase price for orders up to $272. For orders over $272, the maximum late fee that Afterpay may charge to you is capped at $68. 

Klarna made some changes to its fee structure in October 2022. Previously, Klarna didn’t charge any late payment fees to users for products less than $50. For orders more than $50 in value, a late fee of $3 was payable per instalment, which meant the maximum late fee you could be charged on the platform is $9 across three late payments.

At the time of writing, Klarna doesn’t charge any late payment fee to users for products less than $25. For orders valued $25 and more, fee is calculated as follows: 

When you compare both services, Klarna is clearly much cheaper in terms of the late fee it charges to users. While you don’t pay anything for using either Afterpay or Klarna, if you are unable to meet your repayments on time, you’ll see yourself shelling out much more in late payment fees on Afterpay than Klarna.

Klarna also allows you to postpone your due date from the app if you are unable to pay on time due to a temporary shortage of funds but you may be charged a fee for delaying your repayments. Afterpay also provides some flexibility to users by allowing them to reschedule up to three payment dates, by a maximum of five days each, per year.

Both Afterpay and Klarna can be used to pay for your online and in-store shopping. However, you can only use Afterpay as a payment method at partner retailers and participating stores. Klarna, on the other hand, can be used as a payment method at almost any store that accepts card payments.

Klarna issues you a one-time ghost card (virtual card) to pay for your shopping on non-partner sites or when you are shopping in-store. All you need to do is enter the amount you wish to spend before the card is issued to you. Once approved, you can go ahead and complete your purchase by entering the details of the ghost card at checkout.

While Afterpay provides you with a mobile app to shop with partner retailers, Klarna strives to provide an all-in-one shopping experience, including payments, through its mobile app. You can also wishlist items from your favourite brands on Klarna, receive price drop notifications, get exclusive discounts and earn “vibes” for your shopping that can be exchanged for gifts as part of Klarna’s reward club. 

Regardless of whether you choose Afterpay or Klarna as your preferred BNPL service, it’s important to remember that BNPL is ultimately just another form of credit. BNPL platforms usually don’t charge you anything for the service when you make your repayments on time. 

However, if you find yourself struggling with your repayments, you could be hit by late payment fees that may or may not be capped. So, if you use BNPL to buy something you cannot afford, you run the risk of falling behind on your repayments and landing in potential debt.

Both Klarna and Afterpay encourage responsible spending by only approving one transaction at a time. You cannot use your account to make new purchases on either platform if you miss a single repayment on an open order unless you clear your outstanding debt.

It’s possible to sign up on multiple BNPL platforms, and it could encourage spending beyond your means in some cases, such as when you are someone who is given to shopping impulsively. Irresponsible spending could land you in debt and adversely impact your credit score, which is something you want to avoid.