Two years of unsecured loans without the bank

Britons have been able to take out unsecured loans from each other rather than banks for two years now.

Working on the same principal as betfair, where consumers bet with each other rather than against a bookmaker, Zopa has been offering Brits the chance to lend and borrow money to and from each other for two full years today.

In that time more than 135,000 people have joined, with lenders seeing average returns of 6.75 per cent on their money and borrowers getting unsecured loans for as little as 4.2 per cent.

"Our members are proving that social lending works and that it is the breath of fresh air they've been looking for in their personal finance dealings," said James Alexander, chief executive of Zopa.

"Borrowers and lenders are getting a better deal than they can get elsewhere and they enjoy a level of transparency and value for money that's rare in personal finance."

Using Zopa lenders can put up as much as £25,000 while borrowers can take on debts of up to £15,000.

Zopa makes its money from an annual management fee of 0.5 per cent for lenders and a 0.5 per cent fee for borrowers on the amount they borrow. There are no other charges or early repayment fees.

Based on the prospective borrower's credit rating - a score given to consumers by major firms based how reliably they repay loans in general - people are put into different risk categories. Lenders then choose which risk market they want to target, how much they want to lend, what rate of interest they will accept, and for how long the loan should be outstanding.

Just 0.2 per cent of loans have been defaulted on (one in 500), and with lenders seeing their capital split over several loans very few people have lost out.

Zopa then matches this to the borrowers requirements - with lenders offering small amounts of money to at least fifty borrowers and borrowers receiving funds from a group of lenders, thereby spreading the risks for both.

Zopa, whose founders include several members of the original Egg management team, is backed by Benchmark Capital and Wellington Partners.

And for those intrigued by the company's name, Zopa explains the term is taken from business theory. "It stands for Zone of Possible Agreement and is the overlap between one person's bottom line (the lowest they're prepared to get for something) and another person's top line (the most they're prepared to give for something)."