Trade soars for new lending website

One football-loving would-be borrower needed a loan to buy two season tickets for Newcastle United. A 30-year-old woman wanted funds to pay off the solicitor who arranged her divorce. Another more romantic soul simply needed money to whisk his girlfriend to Paris to propose marriage.

In these credit-crunched times, such applications to the personal loan departments of the nation's high street banks most likely would have fallen on stony ground. Which is probably why these borrowers went instead to a new breed of lending facility which brings together individuals prepared to lend with those seeking to borrow, in a sort of financial eBay.

Zopa, a website which enables consumers to cut out banks and arrange "person-to-person" loans, has seen its lending double in the last 12 months, amid growing evidence that discontent with the conventional financial system is driving Britons to seek alternative means of accessing funds.

The website oversaw £36.4m of loans in the last year – a dramatic increase in business for the company. Since 2005 it has overseen such lending to the tune of £70.9m in the UK. By combining better returns for lenders than are available on the high street with the knowledge that money is being exchanged by individuals, such as teachers or gardeners, rather than a large corporation, the founders of the venture believe they have hit on a genuine alternative to the world of high finance.

Giles Andrews, chief executive and co-founder of Zopa, says the interest rates offered are "very competitive", but adds, "I think people are also coming to us because they are fed up with the banks .... People feel their money is disappearing into some sort of weird casino which bears no relation to the real world." The company, which expects to break even soon, makes its money by charging fees from both lenders and borrowers. It says the bad debt rate is about 0.7 per cent.

Lenders, investing anything from £10 to £25,000, set the rate of interest at which they are prepared to offer their funds. Would-be borrowers are graded into broad bands according to credit checks, and pay rates ranging from around 9 per cent to more than 13 per cent. And there is an optional facility for them to explain to lenders just what it is they want to use the money for.