“Will Klarna affect my mortgage application?”. That’s a question our team of mortgage brokers are asked almost daily.
In June 2022, Klarna announced that they would be reporting customers to credit agencies; informing them of payment history and, most importantly, who has a record of failed or late payments. However, since the firm begun reporting customers to credit agencies, have we seen more mortgages suffer from Klarna use? In this article our expert mortgage advisors will highlight what buy now pay later schemes are like and how they could affect your prospects for mortgage loan approvals.
- How Does Klarna Work?
- Drawbacks & Benefits Of Buy Now Pay Later Shopping
- Will Klarna Affect My Mortgage?
- What Is Klarna Reporting & Why May It Affect My Credit Score?
- How To Use Klarna Effectively
- The Levels Financial – We Are Here To Help
How Does Klarna Work?
Klarna is one of the countries leading buy now pay later (BNPL) service providers, who have partnered with various online and high street stores, including, ASOS, Calvin Klein, Microsoft and Expedia. Klarna allows users to split their purchase into bitesize payments either across 30 days or longer depending on the size of the purchase.
In theory, this allows consumers to try items before they commit to paying for them and means they can afford items that are outside their normal monthly budget.
Other, similar firms, such as Clearpay and Laybuy, operate in much the same way, allowing customers to shop with well-known brands without needing to pay the full amount of their purchase at checkout; though the intervals at which payment is expected may vary from firm to firm.
However, all buy now pay later providers offer the same product: an opportunity to purchase luxury or necessity items when you may not otherwise have been able to pay full price.
Pros & Cons Of Using Klarna
| Pros | Cons |
|---|---|
| Owning items before paying the full cost allows people of all incomes to benefit from new purchases. | Increased the chances of impulse buying |
| Retailers can expect more sales & repeat purchases. | Difficult for consumers to keep track of multiple payment plans if using them across various websites for a broad range of purchases. |
| Payments don’t typically have interest fees (late payment fees may occur). | Late payment fees if the loan isn’t paid back in full. |
| Can help customers budget and handle their money effectively. | Unpaid debts could significantly affect the consumer’s credit score and impact them later in life. |
While there is a large amount of flexibility and freedom when using BNPL services and schemes, it is important to fully understand the impact it could have on your finances and credit scores. The flexibility that these firms offer to consumers can make it more likely that users will over-extend their finances and incur significant penalties as a result.
Will Klarna Affect My Mortgage?
At The Levels Financial we work on a personal and one-to-one basis with our customers, so it’s impossible to give a definitive answer regarding whether Klarna’s use and payments will affect your mortgage. However, like most loans, it is always important to exercise good habits and always pay the debt back in the agreed time frame. Late or missed payments of any kind can affect your mortgage application.
If you are consistently late on your Klarna repayments or rack up multiple missed payments, this could affect your credit score, which could then potentially harm your mortgage application.
(You can read more about how to boost your credit score in our blog post, ‘5 ways to boost your credit score from our Yeovil Mortgage Advisors’.
Please note: If you’re looking to apply for a mortgage or remortgage, it is best to not use these types of loans.
What Is Klarna Reporting & Will It Affect My Credit Score?
Since June 2022, Klarna has been disclosing payment information to credit agencies, which is why having a bad payment record on Klarna could negatively impact you and your future loan applications.
In the past, some buy now pay later schemes, such as the one offered through Klarna, were not regulated in this way, and no matter how much you borrowed there would be no record on your credit report.
With all of this kept hidden, credit bureaus and other buy now pay later firms were not able to see how many repayment plans you’d already taken out and how effectively you’ve been able to meet repayments. This meant that it was very difficult for these companies to accurately assess whether they can take on more debt.
As of June 1st 2022, Klarna now reports all purchases made with its 30-day or monthly instalment plans to the credit reference agencies, Experian and TransUnion. Purchases will be reported as to whether they have been paid on time or if they have late or outstanding payments.
How To Use Klarna Effectively
As mentioned above, buy now pay later schemes can be incredibly useful and a reliable payment method for many individuals and families across the country. However, to help reduce the potential impact that they could have on future mortgage applications, our team has put together a list of tips that would help you to continue using Klarna and other BNPL services whilst still keeping you on track for purchasing your future dream home.
Please note, lenders typically do not like seeing mortgage applicants using these type of buy now pay later loans as it is an indication you are potentially struggling financially. So, do NOT think that if you follow the advice below that your lender will approve your mortgage.
Set Repayment Alerts
It’s not always easy to keep track of multiple lines of credit, especially if you’ve taken them out with different firms. This is why we recommend writing down the payment intervals in your calendar, or diary, or setting reminders on your phone at the point of purchase. Do this right away so that you can be sure the information is correct, and it will also mean that no payment will be missed simply because you forgot to send it.
Don’t Overextend
Overextending is when you buy more than you can afford. Making purchases on credit or with buy now pay later schemes without the income to pay it back can cause unneeded stress. Alongside setting alerts for your repayments, you should also note down the total amount owed for each plan, preferably somewhere they can be easily tallied such as a Google sheet or an Excel spreadsheet. This will allow you to see right away how much you owe and whether you’ll feasibly be able to repay another line of credit.
Budget Well
In relation to the above, it’s always a good idea to keep an eye on how much money is coming in, as well as how much is coming out. Doing both will allow you to make sense of what leeway you have in your finances and determine what you can afford. If you’re in the process of taking out a mortgage, talk this through with your mortgage broker at The Levels Financial. We are always there to support you every step of the way.
Our mortgage advice team will look through your current spending habits and any additional costs that might come with ownership of a new property, to get a better understanding of the type of mortgage you are likely to secure. Levels Financial has helped hundreds of new homeowners to draw up a budget plan, and we are always happy to discuss this step of the mortgage application process with you.
Think Before You Buy
We’re not going to lecture you about buying things you don’t need and other patronising statements because we’ve all heard it and bought what we wanted anyway. What our mortgage brokers will advise, however, is that you consider whether the item is something you would purchase if buy now pay later wasn’t an option. Keeping this in mind could help you avoid some of those truly impulsive purchases.
Assess Your Options
Buy now pay later is certainly accessible for many, but that doesn’t mean it’s the only delayed payment solution out there. 0% overdraft bank accounts or 0% credit cards are also options to consider, so if you’ve decided on purchasing with delayed payment make sure you’re getting the right plan for you.
Get In Touch With Your Buy Now Pay Later Firm
If, after following all of our other mortgage broker tips, you still think you might miss a repayment, then try to get in touch with the firm your repayment plan is with. Some plans or schemes do have options in these situations such as snoozing or freezing repayments which could make all the difference in getting back on your feet.
The Levels Financial – We Are Here To Help
The team at The Levels Financial truly cares about helping all of our clients get the keys to their dream home as soon as possible and stress free, by finding the perfect mortgage to suit them. No matter your financial situation, type of mortgage or location, we are on hand to help.
You can book your free initial consultation (which will be either face to face or over the phone at a time that suits you) by emailing us at admin@thelevelsfinancial.co.uk or calling us on 01458 772040. We look forward to seeing how we can help!
Because we always have your best interests at heart, you need to know that if you do not keep up with your mortgage repayments your home may be repossessed. A fee may be included for mortgage advice. The actual mortgage amount you pay will differ depending on your circumstances. Fees can be up to 1%, but typically a fee is 0.3% of the borrowed amount.
