New late payment fees introduced by Buy Now Pay Later giant behind borrowing boom

The Buy Now Pay Later (BNPL) giant Klarna is to extend the imposition of fees for missed payments to all customers.

The move will particularly hit young adults who have turned to BNPL purchases to fund their lifestyles.

Fees were introduced on most of its BNPL interest free purchases last year, however they are now being extended to other regulated financial products.

This will bring in late payment fees to cover the purchase of larger more expensive products where repayments are spread over as long as 36 months, such as mobile phones, washing machines, electronics and furniture.

The fee, which will be £5 for any missed payment of £20 or more, comes into effect for all existing finance agreements from June 20.

The figure will be reduced to 25 percent of the instalment amount if it less than £20. For example, the fee on £16 payment will be £4.

Customers will be given a grace period of 14 days to make each scheduled payment before the penalty fee is charged.

Klarna said: “For customers with an existing order we are bringing our regulated financing product into line with our short-term, interest-free BNPL products by introducing late fees.

“We cap late fees on all our products to ensure they remain a signal for customers to stay on top of payments but never a burden.

“For customers with an existing order, the change will come into effect in June.”

The company has sent out emails to people who are currently making repayments to tell them the finance agreements are being changed.

The cost of living crunch has seen BNPL overtake payday loans as a significant credit option.

Virtually every major retailer now offers BNPL at their online tills, which can make buying that perfect pair of shoes, coat or computer console seem easy and affordable.

However, the net effect is that many young adults have been allowed to take on debt without proper checks on their ability to make repayments. Although Klarna insists it does carry out checks.

BNPL as a form of borrowing is now three times as popular as Pay Day Loans, while it is catching up with credit cards.

Details of changing spending and borrowing trends were revealed in a borrowing report from Lenvi.

It also identified a growing demand for lifestyle lending which covers things like ‘Botox borrowing’, and so-called ‘influ-lending’, where famous faces use social media to promote financial products.

Lenvi operates lending technology for the likes of Barclays, Santander, Metro Bank and Admiral.

It found that 40 percent of people have used BNPL in the last five years, increasing to 47 percent of those under 44 and 70 percent for 18-24 year olds.

Lenvi said: “While interest rates on BNPL are nowhere near the levels offered by payday loans, concerns centre around people’s inability to track and manage repayments, particularly when people have multiple loans running in tandem – known as ‘loan stacking’.”

Sebrina McCullough, director of external relations at Money Wellness, said: “BNPL makes it easier to spend especially when no other form of credit is readily available to you.

“We’ve supported customers who felt they were being chased relentlessly for BNPL debt, which can also worsen mental health conditions.

“And we are concerned that without regulation and proper protection more and more people will find themselves spiralling into a cycle of debt.”