£400 Loans for Bad Credit

Updated: July 28, 2024 Author:

Key takeaways: £400 loans are almost always unsecured unless you go to a pawnbroker. All £400 loans will require a credit check, which can be hard or soft depending on the lender. Credit Unions are cheaper than payday or quick loans, but they are slower, and you have to be a member. Quick loans, payday lenders, and doorstep lenders charge higher interest rates.

Needing £400 for an unexpected bill like a car problem or unexpected utility hike can be impossible to find on a tight or fully stretched budget- it’s a lot of money when you don’t have it. However, for a lender, £400 is small change. Consequently, lending lower amounts is not that popular because it’s not profitable without the high interest fees for faster repayment. Typically, lenders make their profit on longer term loans.

Feeling pressured to borrow a bigger amount to meet a lender’s minimum loan amount isn’t the smart way to use finance. There are specialist lenders that approve loans to people with bad credit, and for only the amount they amount they require, limiting the amount of interest repayable.

Types of bad credit loans for £400 or less

Payday Loans

These are designed to tide you over until you get paid, so the repayment window is short. Payday loans are typically repaid within one month. Interest rates are very high, so you could end up paying back £496 at a rate of 0.8% daily. Payday loans are easy to find online and are usually approved quickly – within 24 hours or sooner. Payday lenders will run a credit check, but you may still get approval even with a bad credit rating, as the result is not always that influential.

Ask the lender whether they do a soft check or a hard check. A soft check won’t affect your credit rating, which is essential if you need to look for a different lender. Also, check they’re approved by the FCA. You must provide essential information like home address, bank details and employment status. The interest on these loans can vary wildly, so shop around. Make sure you know exactly what you will pay back before signing a loan agreement or accepting the terms online. Payday loans can be a lifesaver, however, becoming reliant on them will ultimately cost you a lot of money and worsen your finances.

Quick Loans

What’s the difference between a quick loan and a payday loan? You’ll get finance fast with a quick loan, but remember to distinguish between a decision and approval. The decision is made in principle; the approval stands or falls on the lender’s criteria and the results of their checks. A bad credit history doesn’t always mean a rejection. The affordability test is usually the key to their decision. 

Quick loans usually offer more scope to repay the loan over an extended period. However, interest rates are high – north of 40% – so think carefully about the cost of the monthly repayments. Also, check the total amount you will repay over the term of the loan to compare this with other lenders and payday loans. 

Doorstep Lenders

You can apply for a doorstep loan online or over the phone, despite the name. However, one of the lender’s agents will visit you in person to process your application – this is part of the assessment process and affects their decision. If approved, they will call at your door each week to collect the repayment instalment.

Doorstep lenders must be registered by the Financial Conduct Authority (FCA). An agent doesn’t need to be registered individually but the lender they act for does. You should always ask for evidence of their registration, or check on the FCA website, particularly if you have an unsolicited caller. You can also check out lender companies on the FCA register. A credit check will be required before they make a decision, however, they are usually lenient if you have a bad credit score, a CCJ, or an active bankruptcy.

One of the advantages of a doorstep lender is that you can have the loan paid in cash rather than have it paid into your bank account. However, few doorstep lenders are left in the market, with big names like Provident Financial closing in 2021 after 140 years. Others have followed suit. Doorstep lending is very expensive, with interest rates in the three and four-digit rates.

Employer Salary Advance Schemes (ESAS)

ESAS is also called Flexible Pay or On-Demand Pay and allows employees to request a proportion of their salary earlier than the usual pay date. Schemes vary from one employer to another. If your employer has a scheme, it will be mentioned in your employment contract or contained in a separate document or handbook about employee benefits.

Your employee may restrict the amount you can have in advance (expressed as a figure or percentage of your salary) and/or limit the number of times you can apply under the scheme. You may be required to pay a fee for the advance. The salary advance is a private arrangement between you and your employer, so it won’t appear on your credit history. Your employer won’t run a credit check either.

Make sure you understand the scheme entirely before you apply. Any disputes or disagreements won’t be covered by the FCA as these schemes are not regulated by them. Your salary will be short £400 on your next payday, so you must be prepared to cover that shortfall which could affect regular bill payments.

Government Budgeting Loans

Some people who have been on particular state benefits for six months or longer may be entitled to a budgeting loan from the government. Eligible benefits include income support, income-based jobseeker’s allowance, income-related employment and support allowance or pension credit. If you are on Universal Credit, then you won’t be eligible. You may be entitled to a budgeting advance, but that depends on your earnings. If you’ve earned £2,600 in the past six months (or £3,600 on a joint claim), you won’t be eligible.

For benefit loans, repayments are taken directly from your benefits; and you only pay back the borrowed amount. Applications are made online via the gov.uk website, and decisions can take up to seven days with an answer sent by phone call, text, or letter. Government budgeting loans are not a slam dunk if you’re on the right benefits. They can be refused if you’ve been involved in industrial action or already owe £1,500 or more in budgeting or crisis loans.

Credit Unions

If you want to borrow from a Credit Union, you must be a member first. Each union works slightly differently, and all run mandatory credit checks. A phone call ahead of your application can find out what a particular union accepts regarding credit ratings, which can save time and protect your score.

Credit unions don’t focus on making profits like banks and other lenders; they are cooperative organisations run and owned by their members. They can offer small loans and lower interest rates because they don’t have shareholders. Their focus is a quality service to particular market sectors so they can be a good option if you have bad credit. Generally, credit unions are cheaper and more accommodating than quick loans and payday lenders. However, decision-making can be slow – sometimes up to a couple of weeks – particularly during busy periods like Christmas.

Will a £400 loan impact my credit score?

The answer to this depends on who you borrow from. All lenders must carry out a credit check for your loan, but some will do a soft check, which won’t leave a footprint on your record.

What other ways can I use to find £400?

Although it can be uncomfortable or embarrassing, why not ask a family member, a work colleague, or a good friend? This is a good way to get money fast. You should agree on a monthly repayment schedule that works for them and you and then make sure you stick to it or set a date to pay back the £400 as a lump sum. Don’t be vague about repayments or miss agreed instalments, as it’s sure to cause problems.

You could also consider selling a valuable item to avoid taking out a loan, or taking something worth more than £400 to a pawnbroker to use as security for a cash advance.