Will you be charged a fee for using credit card to pay back Klarna?

Credit card customers of high street bank Halifax have reportedly been hit by charges when trying to make Klarna repayments, the buy now, pay later firm said. 

In a statement on its website published last week following an exclusive story from This is Money which revealed a Tesco Bank credit card customer had been charged fees, Klarna said it ‘was aware’ customers of Halifax and Bank of Scotland, both part of Lloyds, had also been billed extra.

This is because the banks class it as a cash transaction. Most add on fees for certain types of spending on credit cards, such as for gambling and withdrawing money from cash machines.

However, Lloyds Banking Group hit back against that and insisted it did not charge extra fees for using credit cards to make buy now, pay later payments and hadn’t received any customer complaints about the issue. 

Klarna told This is Money that Halifax and Bank of Scotland customers had been hit by extra charges when trying to pay for items in three on their credit cards, but the banks denied that

It is also unclear why customers of just Bank of Scotland and Halifax would be charged and not those of Lloyds Bank, given that the three banks are all part of the same group.

Luke Griffiths, general manager of Klarna in the UK, told This is Money he was not aware of any other credit card providers doing this and said: ‘We would like to clarify that Klarna is not charging this fee, it is the banks themselves. 

‘We would however like to apologise for any inconvenience caused.’

He added: ‘We are working closely with providers to resolve this issue as soon as possible and advise any affected customers to please contact your bank and raise a dispute. 

‘We would also recommend changing the card associated with your instalment account to avoid further fees.’

A fortnight ago This is Money revealed how John Hitchin, 61, from Cambridgeshire, was charged an extra £2.99 in fees and interest after he tried to use his Tesco Bank credit card to pay for a £199 Vax cordless vacuum cleaner in three instalments with the Swedish firm. 

It turned out that Tesco Bank treated the purchase as a cash transaction and thus added extra to his bill. 

It appeared to be the first time anyone had reported incurring a fee for using a credit card when paying with Klarna.

We previously reported on how a man from Cambridgeshire was charged an extra 4.5% when he tried to make Klarna payments for a vacuum cleaner using a Tesco Bank credit card

We previously reported on how a man from Cambridgeshire was charged an extra 4.5% when he tried to make Klarna payments for a vacuum cleaner using a Tesco Bank credit card

After This is Money published John’s case, Klarna updated its FAQs with: ‘what should I do if I am I being charged fees for using instalments with my credit card?’ and added a blog post on the same topic.

This was after we pointed out that both Klarna and Vax said customers could use either a debit or credit card to make instalment payments, and nowhere did either suggest they could be charged more.

Though regardless of whether there are fees involved, using one form of debt in the shape of a credit card to pay off buy now, pay later debt may not seem like the wisest idea, and shoppers may be better off using money they actually have and paying by debit card.

Tesco Bank did not respond to This is Money by the time John’s story was published, but afterwards told us it classed Klarna payments as repaying borrowing and therefore incurred cash transaction fees.

After our story, Klarna posted a piece on its website and added to its FAQs in case other customers encountered the same issue. It said Halifax and Bank of Scotland customers had also been charged

After our story, Klarna posted a piece on its website and added to its FAQs in case other customers encountered the same issue. It said Halifax and Bank of Scotland customers had also been charged

According to the terms and conditions of two of its credit cards, Tesco Bank charges a 3.99 per cent fee and then an interest rate of between 1.873 per cent and 2.40 per cent interest on cash transactions.

Tesco Bank also classes international money transfers, purchases of foreign currency outside of Tesco, share trading and gambling as cash transactions, while withdrawing money from a cash machine also counts as this.

Other forms of ‘repaying borrowing’ include mortgages, loans, store cards or car finance, as well as buy now, pay later.

Following our story This is Money contacted some of the UK’s largest credit card providers, as well as Mastercard, and it appeared Tesco Bank was the sole card issuer which treated buy now, pay later repayments as a cash transaction.

Mastercard told us it was a matter for individual banks to decide, and Barclaycard, Lloyds Banking Group and Santander all told us they did not consider Klarna or buy now, pay later payments cash transactions.

Lloyds previously insisted in a statement: ‘We do not charge fees for transactions paid to Klarna and we haven’t received any customer enquiries or complaints on this topic; we encourage customers to get in touch with us directly if they would like to discuss any fees on their statement in more detail.’

When This is Money put Klarna’s comments to it, it told us it had nothing further to add.

Alastair Douglas, chief executive of credit comparison site Totally Money, said: ‘If you’re thinking of using your credit card for repayments on a buy now, pay later service, it’s a good idea to check first with your lender to see if it will count as a cash transaction.’

THIS IS MONEY’S FIVE OF THE BEST CREDIT CARDS

Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.

Source link