Klarna finds 0% of Brits able to calculate interest cost of a credit card purchase

Klarna is calling for an overhaul of the Consumer Credit Act after commissioning research showing that not one person could calculate how much a typical credit card purchase would cost them.

Head of Klarna UK Alex Marsh deemed the findings of the survey “shocking”.

Buy now, pay later firms like Klarna, which now make up £6.4bn or five per cent of all eCommerce transitions in the UK,  are offering a rival service to credit cards.

Klarna argues its service is a cheaper alternative to credit cards, as it does not charge interest or late payment fees. However, campaigners say buy now, payer later firms make it easier for people to fall into debt.

The research, commissioned by Klarna and carried out by YouGov, found that only six out of ten credit card users know how much interest they are charged.

It also found that not one of the 2,000 people surveyed could correctly calculate how much a typical credit card purchase would cost after interest is taken into account.

Credit card firms must adhere to disclosure rules, under the Consumer Credit Act, which is regulated by the FCA, such as disclosing the APR (annual percentage rate) level.

But Klarna believes, under the current rules, the language is complicated and difficult for consumers to understand.

Marsh said: “It is shocking that well over half of credit card users don’t know how much interest they are paying on their purchases.

“It is vital that consumers understand the basic terms of their credit agreements, even more so at a time when household budgets are under massive pressure, and credit card companies are charging record-high interest rates.”

James Daley, managing director of Fairer Finance, said: "Credit cards are incredibly complex products, with layers of different interest rates and charges. This latest research proves what we’ve long suspected - that the majority of customers struggle to understand exactly what they’re being charged. 

“This situation is made worse by an out of date set of regulations, which force card companies to bombard customers with a range of jargon-filled documents and disclosures during the application process.

“The Consumer Credit Act and FCA regulations need to be urgently reviewed and replaced with more effective rules that ensure customers are given the information they need, at the right time, and in a format and language that they can understand.”

Klarna said the research showed that the respondents were able to understand better the terms and conditions of buy now, pay later products compared to credit cards.

It said that, on reviewing a Klarna buy now, pay later check-out-page, seven out of 10 of respondents said it was clear when they needed to repay while only a quarter (26 per cent) said it was clear when they needed to pay a credit card to avoid additional charges.

Klarna itself is set to face a regulatory clampdown this year following last year’s Woolard Review in which former FCA boss Chris Woolard warned of the need for urgent regulation of BNPL.

Klarna is on record saying it welcomes regulation.