Why Klarna’s $17 Burrito Loans Are Bleeding Money: A Bankruptcy Lawyer’s Take

When I first heard about Klarna—yes, that company offering “micro-lending” so you can pay off your burrito in four easy installments—my immediate thought was: how do they plan to protect their assets?

In lending, protection is everything. Whether it’s a credit card, mortgage, or auto loan, lenders need some assurance that they’ll get their money back. That’s why we have “secured” loans. If you default on a car loan, they repossess the car. Miss enough mortgage payments? The bank sells your house to recover its money. This whole process is called “collections.” But make no mistake: lenders don’t want to collect. Collections cost time, money, and energy—and lenders often lose money doing it.

Even on loans under $5,000, collecting is a hassle. People think creditors can just snap their fingers and garnish your wages or clean out your bank account. Not so simple. Sure, those remedies exist legally, but reality’s messier. Many people fall into income categories that make them exempt from wage garnishment. And don’t forget—bankruptcy is always on the table. Once someone files, that debt can be wiped out entirely. That’s every lender’s nightmare.

Let’s take a walk through what happens to a typical unpaid debt so we can understand why Klarna’s burrito-financing model is, well, absurd.

Say you rack up $5,000 on a Sears credit card and decide not to pay it. Sears will send a few warning letters. But angry mail won’t pay the bills, so at some point, they’ll escalate—maybe to a lawsuit.

Here’s the thing though: Sears isn’t going to chase you down themselves. Instead, they bundle up that unpaid balance with hundreds of other similar debts and sell it off as a “debt portfolio.”

Debt portfolios usually share characteristics—same types of accounts, similar time since default, maybe even similar geographic regions or credit score bands. Debt buyers evaluate these portfolios and place bids. Typically, they’ll offer something like 5% of the total debt. For example, $1 million in bad debt might sell for $50,000.

Once the portfolio is purchased, the debt buyer’s job begins: they need to recover at least what they paid just to break even. So, they farm the accounts out to law firms to file claims, mostly in small claims court.

Here’s where things get dicey. Chasing down 500 people for $1,000 each sounds like a gold mine—until you consider the overhead. Staff, lawyers, court filing fees, and administrative costs make the effort to collect on small debts borderline pointless. That’s why most debt collectors settle for less than full value. It’s also why tiny debts (say, under $300) often go nowhere beyond a few threatening letters. Sometimes Sears will even tell a local collection lawyer, “If someone pays, keep 80%, just give us 20%.”

And this brings us back to Klarna.

Micro-lending as a concept isn’t new. People have been loaning each other small amounts forever. But building a business model around financing fast food? That’s new—and, frankly, a bit risky.

Why? Because as we just walked through, collecting $1,000 is hard. Collecting $17? Practically impossible. You can’t repossess a burrito. You can’t resell it. And no one—absolutely no one—is filing a lawsuit to recover $17.

Even if Klarna aggregated a million of these micro-debts, totaling $17 million, no debt buyer would touch it. Why? Because filing one million lawsuits to recover $17 each would cost more than the debt itself. The filing fee alone in many small claims courts is $90. And even then, if the chain of title—the documentation linking the original burrito debt to the collector—isn’t airtight, the case gets tossed.

The only way Klarna’s model makes sense is if they assume near-total repayment. But here’s the catch: if you’re financing a burrito, you probably aren’t in a great financial position to begin with. And to someone struggling, $17 is low priority. People don’t file bankruptcy over a burrito, but they do ignore small debts—especially ones that come with little to no consequence.

So yes, in theory, Klarna could make money if everyone paid what they owed. But in practice? They’ve dramatically underestimated human behavior. Burrito loans aren’t just unsecured—they’re unserious.

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