It’s Friday night. You’re tired after the working week and can’t face the thought of cooking. So, you open your Deliveroo app and quickly place your order.
But when it comes to pay, your funds are low, so you click on the pink Klarna button instead, and opt to spread the cost of your €50 bill for two acai bowls and smoothies over the next six months.
Then your friend gets in touch about tickets for The Weekend at Croke Park next summer. Again you can’t pay for it now but, thanks to “buy now, pay later”, you can still get your tickets, agreeing to repay the cost in three instalments.
Forget about credit card debt and exorbitant money lending, for many buy now, pay later is the tool du jour for buying what you can’t afford today – and putting repayment off to some date into the future.
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But, while buy now, pay later may make financial sense when budgeting for larger purchases, such as household appliances or holidays, can it ever really be a good idea to borrow the cost of a takeaway? The Economist recently noted that paying for your lunch in instalments could be seen as “consumerism at its most ludicrous” (although it did also point out the merits of the payment tool).
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Research from the Central Bank shows that almost four in 10 buy now, pay later users say it has made them “more likely to purchase things they don’t need” and a similar number say they spend “significantly more money than planned” when using buy now, pay later.
Now, as buy now, pay later player Klarna reaches almost half a million Irish customers, and credit unions warn about growing debts, we take a look at the rise – and risks – of the trend.
How it works
In one sense it’s nothing new: furniture stores have for years offered a similar service to long-finger payment with in-store credit, offering interest-free purchases with payment spread over a number of years. Now, however, the ease of accessing that credit means the format is increasingly being used for smaller purchases. And that might be putting more people at risk of running up unsustainable debts.
Klarna says it works with 6,000 retail partners in Ireland, including Ticketmaster, Airbnb, Temu, Tesco, Therapie Clinic and Vodafone.
It’s not the only operator. Australian group Humm has links with Irish-based retailers including EZ Living, B&Q and Harvey Norman, while Very, previously known as Littlewoods, has pivoted from its catalogue days, when it offered financing to buyers often at high interest rates. It now offers buy now, pay later options, such as six-month interest-free payment options or its “Take 3” option, which lets you split the cost of anything over three months.
Buy now, pay later is typically easier to access than a credit card. All you need to use Klarna, for example, is be at least 18, resident in Ireland, have a valid bank account and a mobile phone.
It is also now a bank. Through Raisin.com, Irish savers can earn rates of around 2.5 per cent a year by putting their money on deposit with Klarna Bank. It is also starting to roll out a new kind of payment card in Ireland, which is debit-first “but offers the flexibility of credit when needed”, says a spokesman.
While the common perception is that buy now, pay later is used by younger adults, Klarna says that the average age of a Klarna customer is actually 39, and the average spend is €150.
How buy now, pay later operators make their lending decisions depends on what you’re buying, and your repayment history.
“If a customer has a long history of ‘on time’ repayments, we will extend a slightly higher amount; if they have previously fallen behind on repayments, we reduce the amount we are willing to lend. If a customer falls behind on payments, we will pause access to further loans until they are back on track,” the spokesman for Klarna says, adding that, as a result, its default rate is less than 1 per cent “far lower than that of a typical credit card”.
The average outstanding balance is €80, he says, “far less than a credit card”. It also means that there aren’t any blanket credit limits.
“We decide how much to loan individually on each transaction,” the spokesman says, adding that factors behind this decision include details of the purchase, the customer’s previous payment history with Klarna, and any existing open payments they have.
Unlike with credit cards or other forms of credit, buy now, pay later operators typically don’t make the bulk of their revenue by charging interest. In its IPO filing Klarna, which went public last month, said about 13.6 per cent of its revenue comes from late payment, or so-called “snooze fees”.
Its main source of revenue is taking a cut of each purchase made through it, typically between about 3 and 6 per cent. So, by allowing customers to pay with Klarna, retailers will be hoping for a boost in sales.
Still a loan
But this doesn’t mean it isn’t credit that they’re offering.
Back in 2023, research from the Central Bank showed that almost a quarter of consumers did not understand how it works, and more than a third thought it was a method of payment, rather than a loan.
David Malone, chief executive of the Irish League of Credit Unions (Ilcu), says that it is now seeing a growing number of people coming to their local credit union to look for help with debt they’ve built up via buy now, pay later.
Noting that “availability is very easy” when it comes to accessing the product, he says users aren’t always familiar with the fact that there is a credit agreement, or loan, underlying it.
“They’re coming to credit unions looking for help, and to put a payment plan in place,” he says.
MABs, the money advice bureau, is also concerned about the growth of buy now, pay later in the Irish market, and has noted an increase in the number of people using it to pay for goods and services.
Michelle O’Hara, MABS national spokeswoman, says their concern is that many consumers “are not fully aware that purchasing through buy now, pay later is in fact a form of credit” and that there is a misunderstanding in terms of how buy now, pay later works.
“It is very important that consumers are fully informed on the credit they are taking out for each of their online purchases (in particular), and are aware of any relevant interest rate and penalties should they miss a repayment,” she says.
Repayment trouble
Difficulties can arise if you have racked up purchases to the extent that meeting your repayments is becoming a problem.
A charge of €3 per instalment for orders below €100 will apply; €5 for orders between €100 and €199.99; and €8 for orders between €200 and €499.99, says Klarna.
“Klarna will not charge more than two late fees per purchase,” the spokesman says. Still, you could end up paying an additional €6 on your acai bowl takeaway.
And there can still be steep interest charges. With Very, for example, if you don’t pay up by the end of the delayed payment period, a lump sum of compound interest will be charged to your account at an APR of 39.7 per cent.
“This means you will pay interest on interest,” the company says. This can make that new bed linen particularly expensive.
While the number of customers in difficulty with buy now, pay later has typically been low, it is on the rise. US figures from last year show that the number of users making late payments jumped from 15 per cent to 24 per cent.
Buy now, pay later operators have been regulated in Ireland since 2022, when the Central Bank introduced new rules, and they are also subject to the Consumer Protection Code. This is due to be revised under the Consumer Protection Code 2025, which will take full effect on March 24th next.
O’Hara says this will involve new requirements in the area of arrears handling, charges and consumer credit.
