Klarna's interest-free 'buy now pay later' service is being offered on more and more flight and hotel booking sites. But is it a safe way to pay for your next holiday?
Online shoppers may be familiar with Klarna at the checkout of fashion retailers such as Asos and JD Sports. It allows you to delay your payment at the checkout for 30 days or choose to stagger payments across three months, both without paying interest.
Klarna is now expanding into the world of holidays and is now being offered at the checkout by Expedia and Hotels.com, among other sites.
Here we take a look at how you can use Klarna to pay for holidays and what you should know before doing so.
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New way to pay for flights and hotels
Klarna - which is Swedish for 'clear' - launched in the UK in 2017 and has been forging partnerships with retailers at breakneck speed.
In total it works with 170,000 merchants worldwide and has joined PayPal on hundreds of online checkouts for fashion, sports, beauty, home and, increasingly, travel retailers.
Klarna told Which? Money it works with hundreds of travel providers globally, but in the UK, it works with just a handful including Expedia, Flymble and Hotels.com.
However, buying a holiday is very different to clothes or trainers as you're likely to spend much more. Last year Expedia's research found the average trip cost £2,417 and lasted nine days.
- Find out more:best debit cards to use abroad
How do you pay for holidays with Klarna?
Taking Expedia as an example, we found that you could opt to pay for return flights for four adults from London to Vancouver worth £1,893 in three instalments with Klarna.
Klarna will do a soft credit check with a credit reference agency that won't impact your credit score. If approved, you'll pay three lots of £631: the first payment is up front, the second 30 days later and the third and final payment 60 days later.
The payments are interest-free, but they are taken automatically from your nominated debit or credit card on the due date, whether you have the money or not.
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What if you fail to pay on time?
Klarna will take the money it's owed automatically from a nominated credit or debit card. So you will need to ensure you have the funds available to cover the payments on the due dates.
If you fail to make a payment Klarna may continue to attempt to collect the overdue and most recent bill on at later due dates.
If you are in default, Klarna may also charge the outstanding balance on your 'pay later in three instalments' purchase immediately, using any card it has on file for you.
Klarna will also report any failure to pay to credit reference agencies. They will record this information on your credit report which could impact your credit score and your ability to borrow in the future for a mortgage or a credit card.
- Find out more:44 tips to getting out of debt
What are your rights if a firm goes bust?
Klarna's pay in three instalments scheme is not regulated by the Consumer Credit Act.
This means Section 75 protection, which applies on purchases of between £100 and £30,000 on credit cards, won't apply if the holiday firm goes bust.
However, Klarna does offers its own buyer protection policy, and you may be able to make a Section 75 claim if you use a credit card to pay off the outstanding debts.
- Find out more:section 75 explained
Should you use Klarna to pay for your next holiday?
Klarna and other 'buy now pay later' firms such as Clearpay and Laybuy offer more flexibility at the checkout, but could tempt you to spend more than you would.
When using Klarna to pay for flights you must make sure you can pay for the total transaction in a relatively short amount of time.
As payments are taken automatically on the due date, you won't be able to prioritise other important payments such as rent or council tax, which could mean you may turn to other quick high-cost credit to cover the shortfall, such as a payday loan or an overdraft.
Instead, you might be better off with a 0% credit card, whichgives you more breathing room to spread the cost of a large purchase like a holiday by up to 26 months.
The average holiday of £2,417 would cost £805 over three months with Klarna's pay in three option on Expedia, compared with £205 a month with a 12 month 0% credit card, which also gives you the added flexibility of allowing you to shop around for the best price for your trip.
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