Aug 26, 20196 min read

What Does ‘Interest-Free Installments’ Really Mean? Let’s Figure It All Out.

Louise Lindberg headshot

by Louise Lindberg

Let’s be honest, there is a lot to keep track of in the wonderful world of e-commerce. Even with something as crucial as online payments, there are many concepts to get your head around. You can’t have missed the recent buzz about instant financing and how to make it possible for shoppers to buy now and pay later. But what do we really mean when we talk about instant financing? Let’s take a look.

No surprise, shopping online is getting bigger with each year that goes by. A survey from 2019 found that 76 percent of US consumers shop online*, which makes it the norm rather than the exception. Even so, as many as 75 percent of all website visits end up with no purchase at all**.

This naturally puts some demands on online retailers – they have to stay up to speed with the rapid changes that are going on in the e-commerce industry, otherwise they will lose sales. The good news is that there are many companies out there that aim to help retailers simplify the shopping journey, with optimized websites, convenient shipping, and flexible payment methods, to mention just a few.

Instant Financing: What’s the big deal?

Of the things mentioned above, online payments have probably been the hottest topic lately. You’ve surely heard all kinds of hype about instant financing and the ‘buy now, pay later’ trend.

The fintech unicorn Klarna has been setting standards for modern online payments since 2005, and many other companies have since joined the trend. Klarna gives online shoppers the opportunity to choose how and when they want to pay. But whenever they choose to pay, merchants always get paid upfront, leaving all the rest to Klarna. To sum it up: Klarna is all about hassle-free payments with both consumers and merchants in mind, creating a win-win situation for both parties.

With the increasing popularity and availability of ‘pay later’ options, there also comes some confusion around the concepts. Instant financing is an alternative payment option that merchants can offer their customers. This payment option allows shoppers to pay a specific amount over an extended, defined period of time.

Instant financing comes in different forms, and when it comes to Klarna, shoppers have three different ways to pay later. They can choose from Interest-free installments, Financing or Pay in 30 days.

But what does it really mean to pay using ‘interest-free installments’ and what are the differences between Klarna’s three payment options? Let’s figure it all out.

Interest-free installments

This payment method simply lets customers split their payment into several equal parts to be paid at an agreed time. Each installment will be charged from the card that the customer entered at checkout. When paying in installments with Klarna, it’s 4 equal parts in the US and 3 in the UK. The shopper pays the first installment at the time of purchase, then the remaining installments are automatically collected every 2 weeks for the US, and 4 weeks for the UK.

Both merchants and consumers benefit from this payment option. Customers get the opportunity to split their payment into parts, at no extra cost, while merchants get the whole payment straight away, leaving all the risk and admin to Klarna.

One pain point for online shoppers is speed, with 75 percent of US shoppers listing the speed of checkout as one of the most important shopping factors***. The checkout process when using Interest-free installments takes 25 seconds, which makes it three times faster than some competitors.

Simply put: Interest-free installments give shoppers – especially those without a credit card – the freedom and flexibility to choose how and when they want to pay.

Some stats:

  • 90% of shoppers say they were satisfied with their experience when paying with installments.
  • 85% of users say Klarna gives a better experience than other online checkouts.
  • 25 seconds is the time it takes from browsing to finished purchase. That’s up to 3x faster than competitors.
  • 68% increase in average order value from shoppers paying with installments.
  • 44% of users say they would have abandoned their purchase if installments weren’t available.

Still curious? Read more about Klarna’s products here.


What differentiates this payment option from ‘Interest-free installments’ is that shoppers can finance their purchase over a longer time. This is a great solution for more expensive products or unexpected but necessary purchases (dishwashers break at the most inconvenient times, don’t they?). Consumers finance their purchases monthly, over 3-36 months.

This payment option gives today’s shoppers the opportunity to buy online and pay at their own pace and, just like the Interest-free installments option, Financing makes shopping easier for people without a credit card. The fact is that as many as 67 percent of US millennials do not own a credit card****, which can make shopping online problematic.

Some stats:

  • 58% increase in average order value.
  • 30% higher checkout conversion.
  • 85% of users say Klarna is a better experience than other online checkouts.
  • 30% of users say they only completed their purchase because the Financing option was available.

Still curious? Read more about Klarna’s products here.

Pay in 30 days

This is probably the most simple form of instant financing. Pay in 30 days gives online shoppers the opportunity to try it before they buy it, bringing the fitting room to the living room. Without paying any interest, shoppers can buy what they want using Klarna, receive their items, check them out, and only pay for what they decide to keep.

The Pay in 30 days option is especially appreciated within fashion retail since it’s perfect for customers who wish to try several sizes or styles at once and only keep the ones they want – just like in a physical store. When returning products, shoppers can easily pause their payment with Klarna until the items have been returned to the retailer. After that, their bill will be updated so they only pay for the clothing they actually keep.

Even though Klarna makes it easy to shop and return, it doesn’t have to mean that the return rate increases. Retailers usually experience that the added sales they get from offering alternative payment options, compensate for possible administrative costs.

Some stats:

  • 90% of shoppers were satisfied with their Pay In 30 Days experience.
  • 85% of Klarna users say Pay In 30 Days is a better experience than other online checkouts.
  • 15.8% increase in average order value.
  • 20.4% increase in shoppers’ purchase frequency vs card.

Still curious? Read more about Klarna’s products here.

*Marist College and National Public Radio, 2019.
**Forbes, 2018.
***Statista – Online shopping behavior in the United States.
****Bankrate, Surprisingly few millennials carry credit cards.
Statistics from Klarna US, 2019.