Mortgage application and Klarna

obc18

Just wondered what the opinion was on Klarna and such like, when putting a mortgage application through? How are these schemes viewed? 
We are in desperate need of a new mattress (its 10 years+ and we've just noticed a spring has escaped through the surface) and as we are both furloughed currently we could really do without breaking into our savings pot right now. We've found a company online that is offering 0% Klarna payments which would be useful but if it has a negative effect on our mortgage application (some time later this year) then we will steer clear. We have a credit card we can also use but that would incur interest. Any advice?

dimbo61

If you don't have enough cash in savings to buy a new mattress I wouldn't bother looking for a mortgage.
All credit commitments will have to be declared on any mortgage application.

obc18

We do have enough cash in savings, I was asking how Klarna is viewed - why would it not be declared? 

csgohan4

0% or not it's still a loan and as above, all credit commitments will be taken into account when getting a mortgage

The fact you can't afford to get a mattress without using such things is a potential worry. 

Getting_greyer

I believe the OP does have savings for a mattress. It's just that being furloughed they would rather keep the cash in hand for the time being which is sensible.  

The question is whether klarna is viewed in the same way as say a payday loan.  Does having klarna on credit history look bad, regardless of the balance outstanding.

chris.heighton

Isnt Klarna just the same as any loan? Like Barclays Finance with Apple for example...

From personal experience, avoid any new credit applications if you are looking to mortgage. While you have advised that a new mattress is a need, do you need it so much that it outweighs potential difficulties with a mortgage? 

Depending on how much you are looking at spending on a mattress there are cheaper mattresses  or options that you could look at (e.g. get a mattress topper to prolong the life of your mattress?)

All depends on when you are getting the mortgage I suppose...

Thrugelmir

How much extra will you pay for the mattress over the coming months compared to buying it outright? 

[Deleted User]

Klarna won't count as a payday loan. It'll be similar to Barclays Partner Finance etc. as mentioned above so just a normal unsecured/retail credit loan.

You'll have to declare it, but treatment will depend on the lender - some will ignore commitments with only a few months left to go (you haven't said how long the proposed term is, or the monthly cost). Others will ignore if you commit to repaying it prior to completion. Others will include it as an expense regardless..

Klarna seem to do a mix - some is very short term (3 or 4 months) others can be a lot longer (up to 3 years). So exactly how it effects you depends on the term and the commitment. If it's £200pm it's not worth doing. £10pm and you'll probably be ok whether it's paid or not,

Ideally, you don't want to be opening any new credit etc. before a mortgage application - it just makes things more tricky than they need to be. If you've got savings but are receiving pay (or will be) and you definitely meet the Government terms, e.g. employed before March etc. - can you not dip into them temporarily and replenish when you both get paid?

If you do take it, but intend to repay it once everything returns to normal, just ensure this is done approx 2 months prior to mortgage application - then it shouldn't be on credit information etc. when you get your Decision in Principle.

obc18

Getting_greyer said:

I believe the OP does have savings for a mattress. It's just that being furloughed they would rather keep the cash in hand for the time being which is sensible.  

The question is whether klarna is viewed in the same way as say a payday loan.  Does having klarna on credit history look bad, regardless of the balance outstanding.

Thank you for not judging and actually understanding what i was trying to explain :-)

Somerset_La_La_La said:

Klarna won't count as a payday loan. It'll be similar to Barclays Partner Finance etc. as mentioned above so just a normal unsecured/retail credit loan.

You'll have to declare it, but treatment will depend on the lender - some will ignore commitments with only a few months left to go (you haven't said how long the proposed term is, or the monthly cost). Others will ignore if you commit to repaying it prior to completion. Others will include it as an expense regardless..

Klarna seem to do a mix - some is very short term (3 or 4 months) others can be a lot longer (up to 3 years). So exactly how it effects you depends on the term and the commitment. If it's £200pm it's not worth doing. £10pm and you'll probably be ok whether it's paid or not,

Ideally, you don't want to be opening any new credit etc. before a mortgage application - it just makes things more tricky than they need to be. If you've got savings but are receiving pay (or will be) and you definitely meet the Government terms, e.g. employed before March etc. - can you not dip into them temporarily and replenish when you both get paid?

If you do take it, but intend to repay it once everything returns to normal, just ensure this is done approx 2 months prior to mortgage application - then it shouldn't be on credit information etc. when you get your Decision in Principle.

Thank you this is useful information. The 'loan' would be around £700 and over approx 6 months, zero interest. In terms of application timeline, well that's all a bit of a grey area as the property is a new build and the site has halted, so what should have been an Aug/Sept application could be Xmas or beyond now. But still, trying to show good conduct on our account and being mindful of the application just incase anything changes. My concern was would it be classed as a payday loan and really damage our case in that way.

Thrugelmir said:

How much extra will you pay for the mattress over the coming months compared to buying it outright? 

Zero interest.

chris.heighton said:
Isnt Klarna just the same as any loan? Like Barclays Finance with Apple for example...

From personal experience, avoid any new credit applications if you are looking to mortgage. While you have advised that a new mattress is a need, do you need it so much that it outweighs potential difficulties with a mortgage? 

Depending on how much you are looking at spending on a mattress there are cheaper mattresses  or options that you could look at (e.g. get a mattress topper to prolong the life of your mattress?)

All depends on when you are getting the mortgage I suppose...

We already did the mattress topper option....three years ago lol It has bought us some time!

csgohan4 said:
0% or not it's still a loan and as above, all credit commitments will be taken into account when getting a mortgage
The fact you can't afford to get a mattress without using such things is a potential worry. 

I fully expect it to be taken into consideration, I understand this. My question was, how is it that type of credit agreement viewed in the eyes of a lender, eg. a normal credit agreement or a nasty payday loan. A payday loan can be well-managed and paid off accordingly but would still be very damaging for a mortgage application. If this is the case with Klarna, I'll steer clear. I just wanted to be sure.

bell

It was queried by my underwriter I told them it would be clear on completion. Didnt seem to be a problem though

[Deleted User]

Although that's a genuine and sensible concern (as PDLs wreck havoc for years), I can't imagine any lender classing it as a payday loan or Klarna themselves reporting as a payday loan to credit files (even payday lenders don't always report as a payday loan!).  If you did want to go ahead still, you could try messaging Klarna and asking what category they report to at the three CRAs - e.g. Credit Card, Unsecured Loan, Fixed Term/Credit Sale. They should be able to tell you. e.g. PayPal credit is similar and reports as a 'credit card'.

I've done some digging to see if they do report, and it looks like they do for the option you want "slice-it"/financing (6 months or more) - https://www.klarna.com/uk/blog/does-klarna-impact-my-credit-score/ - this means that for you, you'll have a hard search and (if accepted) a new credit account opened.

In the grand scheme of things, a new credit account and search aren't a big deal. But, personally, I'd really avoid any credit searches/new accounts etc. - you just don't know how lenders will score you, and taking out a relatively low value loan (even though it's not formally classed as a payday loan) could count against you. I'm in the same situation as you and want a cashback card, but I'm not risking it until after I've moved (whenever that is!) - you may narrowly fail credit scoring (although normal customers would never know that) and you'd be absolutely kicking yourself, thinking what if I hadn't done that hard search etc.

Dipping into your savings, if you can still meet your other commitments and eventually replenish savings, is absolutely better than Klarna financing - even if it is 'buy now pay later' / 0% etc. Credit scoring is unlikely to take that into account.