PayPal and Klarna will apply strict credit rules for loans under 200 euros!
Starting next year, payment services like PayPal and Klarna will be required to conduct credit checks even on small loans under 200 euros, aimed at protecting young consumers from falling into debt.
The European Commission has introduced a new directive on consumer loans to address the rising debt resulting from 'Buy Now, Pay Later' (BNPL) schemes, which have become increasingly popular among people under 30 for purchasing clothes, concert tickets, and smartphones. This directive must be implemented into German law by November 20, 2025.
Financial service companies, including Klarna, PayPal, Ratepay, and Riverty, will need to verify the creditworthiness of customers before approving any loan, even loans under 200 euros. Companies have one year to comply, and Klarna has confirmed that it will meet the requirements in all EU markets by November 2026.
Consumer protection advocates expressed their concerns about the feasibility of these checks for very small amounts like 50 euros, noting that lenders may find conducting a comprehensive creditworthiness assessment burdensome. Senior retailers, including Zalando, warned that these rules could add operational challenges, especially when relying on external payment service providers.
The BNPL system allows consumers to purchase products immediately and pay later through methods such as installments, interest-free financing, or buying on account. While it is beneficial in urgent need situations, it carries the risk of accumulating debt if spending is not monitored carefully. Consumers are advised to track monthly expenses, check for fees and interest, and avoid borrowing to purchase unnecessary goods unless funds are available.