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The use of Klarna and other ‘buy now, pay later’ schemes has skyrocketed in recent years. While they have been useful for some consumers, it’s worth considering what impact using them can have if you need to apply for a mortgage in the near future.
Here we will explore the effect of Klarna and similar services on mortgage applications, and what you can do to boost your chances of approval with Klarna usage on your file.
Will Klarna usage stop you from getting a mortgage?
Not necessarily, but using Klarna and similar services such as Paypal Credit, Laybuy and Clearpay can have an impact on a mortgage application in a number of ways:
- Debt-to-income ratio: Sometimes debts related to Klarna agreements will add to your debt-to-income (DTI) ratio, which measures your total income with fixed outgoings factored in. A significant amount of debt from a Klarna purchase could push your DTI ratio up to a point where it’s harder to get a good mortgage deal.
- Extra lender scrutiny: Mortgage lenders will be able to see Klarna usage against your name when they assess your application, and some might see it as a minor red flag and be concerned that you are living beyond your means. This doesn’t mean they will reject you outright, but may look into why you needed to use Klarna.
- Affordability: If you are tied into substantial Klarna payments for a long period, some lenders will class this as a fixed outgoing and offset it against your income when assessing your affordability. This could impact your maximum borrowing.
- Missed payments: Klarna usage can have the biggest impact on your mortgage application if you have ever missed payments on an agreement with them. Some lenders will see this as a sign that you are not a responsible borrower.
When Klarna use isn’t an issue for lenders
The important thing to note is that, while Klarna can negatively impact a mortgage application, it is absolutely possible to get approved with it on your credit files.
Mortgage lenders will usually take a look into the circumstances surrounding your ‘buy now, pay later’ agreement, but there are times when it can be ignored entirely, such as:
- If you used Klarna as a one-off and paid the debt in full
- The Klarna usage is for a relatively small amount of money
- You have never missed any payments on the agreement
- The debt will be repaid before you complete on your mortgage, or shortly after
Although some lenders take a dim view of any Klarna use whatsoever, some mortgage providers will review it on a case-by-case basis and offer a mortgage with no caveats.
Can Klarna usage ever be beneficial to a mortgage application?
There are rare instances where it can be. If you were to enter a ‘buy now, pay later’ arrangement with Klarna and make the repayments in full and on time, this will help you build some credit history, and this can be beneficial for a mortgage application.
If you are applying for a mortgage with no, or limited, credit history, responsible Klarna usage can be helpful, but keep in mind that there are lenders who won’t want to see any at all.
Klarna does not perform a hard credit check for ‘buy now, pay later’ deals, but this isn’t the case when taking out financing with so, so be aware that this can impact your credit reports.
What to do if you are concerned about the impact of Klarna on your mortgage application
You should speak to a mortgage broker if you are worried about this.
They can review how detrimental your Klarna usage could be with your credit profile in mind. If a ‘buy now, pay later’ agreement is likely to impact your plans, they can explore solutions, such as credit repair, with you and find you a lender who doesn’t penalise for Klarna use.
Get in touch to speak to one of our mortgage brokers today.
