Buy now, pay later (BNPL) services have exploded in popularity in recent years. Two of the biggest names in the space are Klarna and Affirm. At first glance, these two companies offer similar flexible financing options for online and in-store purchases. However, key differences in their product offerings, fees, and more make one service a better fit depending on your situation.
In this comprehensive guide, we’ll compare Klarna and Affirm across several categories to help you decide which BNPL provider is right for your needs.
The Rise of Buy Now, Pay Later Platforms
The buy now pay later industry originated from layaway programs offered by brick-and-mortar retailers. But thanks to fintech innovation, modern BNPL services have turbocharged short-term financing with instant mobile approval decisions and seamless integration across merchant platforms.
The global BNPL market was worth $90 billion as of 2021 and is projected to reach $166 billion by 2023 (Source). Driving this growth is Gen Z and millennial preference for flexible spending alternatives to traditional credit along with ubiquitous mobile/digital adoption.
Klarna and Affirm stand at the forefront of this new generation of financial services. Let‘s take a deeper look at each platform‘s origins and competitive positioning.
The Klarna Story
Klarna was founded in Stockholm in 2005 by Sebastian Siemiatkowski and Niklas Adalberth. The company found early success by offering invoice payments to ecommerce customers in Sweden and Germany, reducing friction and improving conversion for retailers (Source).
This concept quickly gained traction with European consumers and merchants. And by 2014, Klarna was the highest valued fintech startup on the continent thanks to rapid expansion across continental markets (Source).
Today, Klarna offers pay later financing to over 147 million global consumers and processes nearly 2 million transactions every day (Source). The Swedish fintech startup has succeeded in disrupting stagnant payment incumbents by meeting buyer demand for flexible, transparent financing.
Affirm‘s Focus on Honest Financial Products
Affirm was founded in 2012 by serial entrepreneur Max Levchin. As a co-founder of PayPal, Levchin sought to eliminate legacy issues with the credit industry for his next venture (Source).
Rather than profit from consumer debt through hidden fees and excessive interest rates, Affirm aimed to empower consumers to spend responsibly. By providing transparent loans at the point of sale, customers could make informed financing choices aligned with their budget in real-time.
This focus on creating more honest financial products for ecommerce resonated in the early 2010‘s marketplace. And the appeal of Affirm‘s loans led to rapid growth in partnerships with trendy direct-to-consumer brands. By the mid 2010‘s, Affirm was processing billions in annual sales through its flexible financing (Source).
And today, Affirm looks to expand beyond retail into healthcare, travel, and other services as its network reaches over 13 million consumers (Source).
Key Products Offered
Klarna and Affirm both focus primarily on buy now, pay later financing, but their specific offerings differ.
Klarna
- Pay in 4: Pay for purchases in four interest-free installments across six weeks
- Pay in 30 days: Try products first, then pay the full amount after 30 days if satisfied
- Financing: Longer-term loans from 6-36 months with 0-30% APR
- Klarna Card: Can be used like a credit card to enable installment plans and financing
Affirm
- Pay in 4: Four interest-free biweekly payments
- Monthly financing: Borrow $50 to $17,500 and pay back over 3-48 months with up to 30% APR
- Affirm Card: Can be used like a credit card for flexibility in financing larger purchases
While their core products are similar, Klarna offers more flexibility with their pay in 30 days option and wider 6-36 month financing terms. However, Affirm allows larger individual purchase amounts up to $17,500.
Purchase Limits, Terms and Costs
| Service | Individual Purchase Limit | Loan Terms Available | Interest Rates | Late Fees |
|---|---|---|---|---|
| Klarna | $1,000 max for "Pay in 4" | 6-36 months | 0% for "Pay in 4", up to 29.99% APR for financing | $7 or 25% of missed payment |
| Affirm | $17,500 max | 3-48 months | 0% for "Pay in 4’, up to 36% for financing | None |
Digging deeper, here is how interest rates assessed vary across credit tiers for longer-term financing:
| Credit Tier | Klarna APR | Affirm APR |
|---|---|---|
| Excellent (720+) | 0 – 9.99% | 4.99 – 19.99% |
| Good (680-719) | 10.00 – 19.99% | 10.99 – 24.99% |
| Fair (640-679) | 20.00 – 29.99% | 24.99 – 34.99% |
For smaller purchases under $1,000, Klarna and Affirm have identical 0% APR "Pay in 4" installment plan options. However, Affirm allows much larger individual purchases up to $17,500.
When it comes to longer-term financing, Affirm‘s upper limit is 36% APR compared to Klarna‘s 29.99% cap. And Klarna charges fees for missed payments, while Affirm does not.
So all in all, Affirm edges out Klarna when it comes to higher spending limits and fee avoidance. But those with mid-range purchase amounts who value Klarna‘s flexible 6-36 month terms could still find better value with them.
Availability and Acceptance
When it comes to geographic availability:
- Klarna is available in 18 countries, including North America, most Western European countries, and Australia.
- Affirm is only available in the United States, Canada and Australia as of writing.
In terms of merchant acceptance, both Klarna and Affirm have partnered with 100,000+ retailers for flexible online/in-store financing. Major partners include Target, Walmart, Amazon, Sephora, Peloton, and more.
So when it comes to availability and acceptance, Klarna has wider reach globally. But in the countries where Affirm operates, merchant acceptance is similarly extensive.
Eligibility and Application Process
The basic eligibility requirements for Klarna and Affirm are similar:
- 18+ years old
- Resident of country where applying
- Social security number
- Minimum income requirement that varies based on financing amount
- For financing, a soft credit check is initially performed which does not impact credit score
However, approval odds can vary between providers depending on your precise credit profile. According to NerdWallet, Klarna approves applicants more often overall (Source). But for those with excellent credit (720+ score), approval rates are high for both companies.
| Age Group | Prefers Klarna | Prefers Affirm |
|---|---|---|
| Gen Z (18-25) | 28% | 72% |
| Millenials (26-40) | 46% | 54% |
| Gen X (41-55) | 61% | 39% |
Younger demographics tend to favor Affirm, while Klarna sees higher uptake among older borrowers (Source).
The application process is quick and simple with both providers:
- Klarna: Create an account and connect a debit card for instant access to installment plans and financing
- Affirm: Open account and card then arrives 7-10 days later to enable flexible spending
Financial Health Implications
With any financing service, consumers must weigh benefits against potential risks to their long-term financial situation.
The Consumer Financial Protection Bureau (CFPB) reports that buy now, pay later loans can provide convenience and flexibility. However, missed payments can still accumulate as debt owed to lenders and appear on credit reports, negatively impacting consumers‘ ability to access affordable credit in the future (Source).
Tools like Klarna‘s app and Affirm‘s financial planning dashboard can empower consumers to transact responsibly and avoid predatory debt traps. But ultimately, financial discipline in spending within one‘s means reigns superior to reliance on any financing vehicle long-term.
Security and Privacy
Klarna and Affirm both use encryption to keep your financial information secure as it flows between apps, banks, and merchant platforms:
- Customer bank/card details are tokenized as virtual account numbers rather than raw sensitive data
- Multi-layer cybersecurity defenses protect against intrusions with AI monitoring and automated response capabilities
- Rigorous internal access controls ensure that only authorized personnel can view sensitive user information
For privacy, Affirm has an edge in that by acting as the lender themselves, the company serves as a buffer between customers and merchants:
- Merchants/retailers do not gain access to your personal or purchase data
- Affirm anonymizes information shared externally after the fact for reporting/analysis
Whereas with Klarna, more transaction details must be communicated directly with the merchant at checkout to enable future installment debits and process potential returns. So consumers seeking maximum privacy could see Affirm as preferable.
Overall though, both Klarna and Affirm offer best-in-class safeguards protecting user data that exceed legacy payment platforms reliant on in-person card swipes alone.
Pros and Cons of Klarna vs Affirm
| Service | Pros | Cons |
|---|---|---|
| Klarna | – Wider international availability – Flexible 6-36 month financing terms – High overall approval odds |
– Can charge fees for missed payments – Lower max. purchase amount ($1,000 for "Pay in 4") |
| Affirm | – $17,500 individual purchase limit – No late fees – Generally lower interest rates |
– Only available in U.S., Canada and Australia – Slightly more selective approval criteria |
Recommendation: When Klarna and Affirm Are Best
So ultimately, should you choose Klarna or Affirm for your financing needs?
For smaller, short-term purchases in the U.S., Canada or Australia, Klarna and Affirm are largely interchangeable. The "Pay in 4" plans are identical. Klarna has an edge for flexibility with a pay in 30 days option, while Affirm allows higher limits at select retailers.
For larger purchases or if you value longer repayment terms, Affirm tends to be the better choice given higher spending caps and lower maximum rates. Approval is very likely with excellent credit.
If you live outside the U.S./Canada/Australia, need to finance $1,000-$10,000, or want maximum term flexibility, Klarna is likely the service for you. Just be aware of potential fees for missed payments.
Millennial and Gen Z consumers often prefer Affirm for its focus on financial transparency and mobile experience. Meanwhile, Klarna sees higher uptake among older Gen X and Baby Boomer borrowers.
For most borrowers focused on simplicity and occasional short-term financing, either Klarna or Affirm are great modern solutions that beat old-school credit cards. Evaluate your specific situation and priorities to determine if one edges out the other for your needs.
Future Outlook
As consumer comfort with digital financial services increases over time, expect continued growth and innovation in the BNPL space.
We could see Klarna and Affirm expanding installment payment options to new categories like healthcare deductibles or subscription services. This would reduce need for credit access in managing essential recurring expenses.
Tighter integration of BNPL payment options across mobile operating systems and IoT devices also provides opportunities to drive incremental adoption. And increasingly sophisticated risk modeling using trends like open banking could unlock financing access for underserved demographics.
While questions remain around appropriate regulation to prevent predatory lending practices, BNPL leaders focused on financial inclusion like Klarna and Affirm are poised to shape the next generation of ethical digital banking.
The Bottom Line
Klarna and Affirm both offer flexible alternative financing options to traditional credit cards. Key differences in geographic availability, maximum purchase limits, loan terms, fees, and approval odds make one service preferable over the other depending on your profile and priorities as a borrower.
For smaller purchases, Klarna and Affirm are largely interchangeable in countries where both operate. But for larger amounts or longer repayment terms, Affirm pulls ahead. And only Klarna enables installment financing for those outside the U.S., Canada or Australia.
Compare your situation to the key differences summarized above. And you can determine with confidence whether Klarna or Affirm is the right fit as your preferred buy now, pay later solution going forward.
