What is Klarna Purchase Power | Why is it down [Answered]

If you are using Klarna Buy Now Pay Later Service, you may have come across the term “Purchase Power” on Klarna App. If you are curious to know what is Klarna Purchase Power and have questions like how Klarna Purchase Power works, what causes it to increase or decrease and why is not available etc., you are on the right post.

Klarna, founded in 2005, is a Swedish-based Buy Now Pay Later Service provider which operates in more than 17 countries. Klarna has more than 20 million customers in the US.

With that context, let’s jump right into the main topic.

What Is Klarna Purchase Power?

Klarna Purchase power is an estimated amount that you can spend with Klarna. It may be called a spending limit.

However, Klarna Purchase Power is a dynamic amount that is automatically determined and refreshed for every purchase decision. Factors like where you shop and what time apart from your past payment history, credit score, etc. can also increase or decrease purchase power.

So, there is no guarantee that your purchase will be approved, even if the transaction value is within your Klarna Purchase Power. This makes it confusing.

There are times that you may be asked to pay a larger first installment in order for the purchase to be approved. And your Purchase Power is not a direct reflection of what you’ll be approved for.

The good thing and even a bad thing is that Klarna Purchase Power gets updated on a real-time basis and is calculated for every purchase decision.

There is no predefined credit limit when using Klarna products, instead, you can see your Purchase Power in My Klarna if you are a returning Klarna customer. Your purchase power is an estimated amount based on factors such as credit, your payment history with Klarna, and your outstanding balance

Klarna Support

Many users have even seen an adjustment in their Klarna Payment Plan with this change.

What causes Klarna Purchase Power to increase or decrease?

Klarna Purchase Power depends on a number of factors which include

  • Active Orders
  • Current outstanding balance with Klarna
  • Payment History
  • External information like your credit score (Recent update)
  • Store, payment option, and time of the day of purchase

In general, your Klarna Purchase Power will rise gradually

  • Paying off your existing Klarna outstanding if any
  • Increasing your overall credit score if you use other forms of credit

There is no manual intervention possible here. You cannot call up customer support to look into the issue and manually adjust your Purchase Power. It is all algorithmically determined and the goal is to create responsible shopping behavior as per Klarna.

Why is Klarna Purchase Power Down?

Your Klarna Purchase Power may have gone down due to a recent change implemented by Klarna where it has started reviewing a user’s credit score to determine the Purchase Power. Earlier, it seemed that only your Klarna payment history was used to determine Purchase Power.

This has resulted in a sudden steep decline in Klarna Purchase Power for a lot of users almost overnight.

You would see complaints being raised by Klarna users across different forums since this change has even impacted those who had a good payment history on Klarna and no defaults.

This is one of the unpleasant surprise you can encounter – not to mention the Klarna 2$ service fee in some transactions among others.

This will definitely be short-term pain for Klarna as it causes loyal users to shift to other BNPL modes. But it seems Klarna believes it will drive better lending decisions in the long run.

You would be seeing replies from Klarna support on the recent changes in their system:

Your purchase power sadly went down due to our purchase power update which now uses Vantage Scores (credit history) to determine your purchase power.

We’ve recently updated our automatic decision process with credit history. Purchase power is now reviewing each customers’ credit history to determine a limit, which is intended to help us lend as responsibly as we can. Take care.

So you need to keep a tab on your Vantage credit score, which is now being used as a factor to determine your Purchase Power

The VantageScore is a credit scoring system that has been developed by the three major credit bureaus i.e. Equifax, Experian, and TransUnion to predict how likely you are to repay borrowed money.

Now one issue here is that your credit score is based on data for other credits you may have taken like a credit card, loan, etc. Currently, your record on BNPL apps does not help your credit score to improve.

On the other hand, if you make a late payment or missed payments, that can actually lead to a decline in your credit score (since this can be reported to credit bureaus). Even if you have a great track record on BNPL services of paying on time or even before time, it is not being used in the calculation of credit score.

So your credit score is an independent factor that is not related to your past payment history on Klarna.

Why Klarna Purchase Power is not available

Your Klarna Purchase Power may have been declined as a result of your credit score being used as a factor to determine your Klarna Purchase Power. In such cases, where there is a big one-time decline in your existing purchase power and chances are the limit may go below the current outstanding or may be used up by your existing active orders on Klarna.

Other factors which may cause a drop in Purchase Power

  • Current active orders and high outstanding balance on Klarna
  • Late or missed payment on any existing order
  • Factors associated with the transaction – like transaction amount, the merchant involved, and time of day

In such as case, you are left with no credit and the only way to get further credit is by clearing all your existing Klarna debt. You can even prepay your installments and wait for the Purchase Power to get back up.

Klarna Credit Limit vs Purchase Power

Klarna does not have any fixed credit limit attached to your card. Your Purchase Power is an indicative amount of what you can spend on Klarna and that too is updated in real-time and not universal, since it can change based on the store and time of purchase.

This is unlike credit cards which usually have a relatively stable credit limit that is more likely determined by your credit score.

Wrap Up

Klarna Purchase Power is a dynamic amount and updated in real-time. However, the one-time impact of new factors like credit score has had a huge impact on those who relied on Klarna. In general, if you see an increase or decrease on it, you can expect to see gradual changes with time on a positive behavior not only on Klarna but also on other credits you have. It is better you don’t wholly rely on Klarna and always have a backup option for your necessary purchases so that you are not stranded.

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I have a passion for finance and technology. On this blog, I share helpful information on products and services that we use in our daily lives and simplify things I learned the hard way.

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