Gen Z is racking up credits with buy now, pay later apps like Klarna

Last July, Armani Bryan spotted a $2,000 Marine Serre blue dress on chic digital retailer Farfetch that she had to have — but couldn’t quite afford.

And so, the 20-year-old Miami native used the payment deferral app Klarna, thinking there would be no harm in buying the dress in four installments through the enticing “Pay in 4” from Klarna.

But for Bryan, Klarna’s polished, updated take on the layaway turned out to be too good to be true. Now saddled with debt and a dismal credit score, she joins the more than 717,000 compassionate millennials and Gen Zers on TikTok for their respective buy now-pay later, or BNPL, horror stories, via the hashtag #KlarnaCredit.

“I thought I’d pay for this dress in four [installments] would be easy for me, but it wasn’t,” Bryan told the Post.

Armani Bryan claims she is in debt and suffered a damaged credit report after spending too much on buy it now and pay later schemes.
Photo courtesy of Armani Bryan.

The fintech company, founded in Stockholm, Sweden, in 2005, offers its 150 million registered users the option to evenly divide the total price of an item into four payments and pay off the balance over a period of six weeks with “no interest or fees if you pay on time“, according to its website.

Once a customer agrees to the terms, the system allows the customer to make an initial deposit upon checkout, then automatically collects the next three payments through the person’s registered debit card every two weeks.

But the most appealing part of the deal is that, unlike traditional layaway programs, in which retailers retain possession of a product while the customer reduces the cost over time, Klarna releases the product to its customers immediately after the initial payment – a benefit that seems to appeal to young consumers.

Klarna’s “Pay in 4” plan offers users the ability to purchase items and refund them on a strict six-week schedule.
Gado via Getty Images

A March 2021 study by financial analysis research firm The Ascent found that nearly 56% of consumers have made purchases via BNPL giants like Klarna, Afterpay, Affirm, Sezzle and Zip – all of which have different policies on late fees, interest and debt collection – between 2020 and 2021. And a study published in June by eMarketer revealed that millennials and zoomers, like Bryan, wear makeup almost 75% of payment deferral service users.

But after buying her high-priced dress through Klarna – which is backed by a slew of fashionable tastemakers like rappers Snoop Dogg, a minority shareholder, and A$AP Rocky – she found herself choking on debt of the service that promises users “a financial breathing room.”

The purchase of the dress ended up putting Bryan in debt, leaving him with a hefty Klarna balance.
Buying the dress pushed Bryan into debt, leaving her with a hefty Klarna balance.
Courtesy of Armani Bryan; Navy Tight

“They rely on customers to fall behind on payments,” Bryan said. “That way they’re able to collect late fees and report you to debt collectors.”

In the summer of 2021, Bryan “fell hard [financial] times” and was unable to cover the balance of his loan. She still owes $1,034 for the dress, plus $93.38 in fees. She said she was also regularly harassed by collection agencies urging her to pay.

She’s not the only one having a Klarna-related crisis.

For university student Amy Douglas, the BNPL app allowed her to buy on impulse and created a “vicious cycle”.

Douglas claims she narrowly escaped long-term BNPL debt after falling behind in payments from Kalrna.
Douglas claims she narrowly escaped long-term BNPL debt after falling behind in payments from Klarna.
Amy Douglas

In the summer of 2019, the 22-year-old part-time saleswoman started indulging in trendy duds at online stores like ASOS and using Klarna to defer payments. Her splurges seemed reasonable — a $112 dress here and a $150 coat there — but they added up.

“[Klarna] I almost looked like I was getting these things for free,” Douglas, who lives in Cumbria, UK, told The Post.

But when the bills started pouring in, demanding more than 40% of her monthly income of $630, she was forced to seek loans from relatives.

“It was so embarrassing that I went into so much debt because I couldn’t control what I was spending,” said Douglas, who has met her boyfriend and father before. pay full balance this past April. “I’ve never missed a payment at Klarna because I was terrified at the mere thought of a debt collector knocking on my door.”

Klarna representatives insist the company does not benefit from user debt.
Klarna representatives insist the company does not benefit from user debt.
Bloomberg via Getty Images

A Klarna spokesperson told the Post that the company doesn’t “benefit from people being in long-term debt.” Instead, the rep says the company is working to “ensure that we only lend to those who can afford to repay.” According to its site, Klarna makes a profit by charging retailer fees to its 400,000 merchant partners – like H&M, Nike and Peloton – on every transaction.

And, while giant BNPL markets itself to customers as having “no impact on your credit”, its fine print warns customers that “missed payments and unpaid debts are sent to debt collection.” It also claims to extend support to users in financial difficulty. (Bryan alleges she contacted the company about her financial troubles, but received no help.)

Bryan also got into trouble with Affirm, another deferred payment app that appeals to younger customers. Last summer, she racked up purchases using their “Pay in 4” option, which she says then caused her credit rating to plummet after a few late payments. However, a representative from Affirm told The Post: ‘There is no credit report with our ‘Pay in 4’ option. We only report longer term monthly loans. »

Affirm does not charge late fees or hidden fees to customers who miss payments.  Instead, consumers can request a change to their repayment schedule.
Affirm does not charge late fees or hidden fees to customers who miss payments. Instead, consumers can request a change to their repayment schedule.
SOPA/LightRocket images via Gett

TikTok financial educator Ben Markley told The Post that younger consumers should be wary of all BNPL apps.

“They let you spend money you don’t have yet, which just means you’re tying up future paychecks,” said Markley of budget brand You Need a Budget.

Instead, he said millennials and zoomers would be wise to use another time-honoured tactic: saving up for big purchases.

“To create a [biweekly] budget for yourself and set aside what would be the same amount you would pay in a four-payment plan,” Markley said. “And after two months, you can buy the entire item without the stress of going into debt.”

Amanda P. Whitten