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Online 'peer-to-peer' lending, even between strangers, is yet another example of how the Net reshapes nearly every business it touches

It's getting easier to borrow money via the Internet, and not just from banks. A host of financial websites help arrange loans between friends, family members, and even total strangers.

So-called "peer-to-peer lending" is another example of how the Internet reshapes nearly every industry it touches. In a peer-to-peer deal, both borrower and lender often get a better interest rate than they'll find at a bank or credit card issuer. And the online facilitator collects a fee from each of them.

"People have been borrowing money from each other for generations," said Madhavi Mantha, a banking analyst at Celent LLC in Montreal. "What they're doing is creating an infrastructure, a set of tools, to make it easier."

A site launched by veterans of Britain's banking industry in 2005 to facilitate loans between strangers plans to launch a US service this year. Zopa.com already has 170,000 users, all of whom must pass the same kind of credit check they would undergo at a regular lending institution.

"We make a lending decision the same as a bank would," said Douglas Dolton, the American who serves as Zopa's chief executive.

Only good credit risks are accepted, and borrowers are listed on the site according to their credit rating and the duration of the loan they are seeking.

But the lending side of the operation is quite different from an ordinary bank's. Individuals who sign up for the service indicate how much money they're willing to put up and for how long, and how much risk they'll accept. They can lend only to the most reliable borrowers, and accept a lower interest rate, or make riskier loans for a higher return. "Overall, our lenders are averaging a little bit north of 7 percent," said Dolton.

Even if a borrower defaults, lenders won't take too much of a hit, because their money is lent out in increments of 10 British pounds, and spread among a number of borrowers whose credit ratings are acceptable to the lender. If one goes bad, the lender only loses a portion of his money. Dolton won't say exactly how many loans Zopa has made, but he said the company has had exactly two loan defaults in its history.

Zopa will find some serious competition waiting in the United States. Prosper.com, founded by the former chief executive of online banking firm E-Loan, was launched 16 months ago, using a lending structure similar to Zopa's. Already, Prosper.com claims 330,000 members and over $70 million in loans.

Zopa and Prosper are a bit unusual in that they arrange loans between strangers. Most peer-to-peer lending happens between people who know each other. CircleLending Inc., of Waltham, is the granddaddy of peer-to-peer lenders that tap into the "friends and family" market.

CircleLending was launched in 2001 by Asheesh Advani, formerly of the World Bank. In 1998, Advani calculated there was a $300 billion global market for person-to-person loans of $1,000 or more. But he noted, "the ways people manage these individual transactions is very haphazard."

Early on, Advani considered using the Internet to arrange loans between strangers. "I decided that was not the business I wanted to run," he said. CircleLending facilitates loans between people who already trust each other, but want help in managing the loan.

A mother might lend $5,000 to her son for a down payment on a car. Tools at the CircleLending site will help mother and son come to terms on the length of the loan and the interest rate. The calculator shows the monthly payment amount. For $99, CircleLending issues a legally binding promissory note and a repayment schedule. For $9 per payment, the company will set up automatic repayments using electronic funds transfer.

CircleLending has arranged about $210 million in loans so far, with about $150 million currently outstanding. CircleLending's default rate hovers below 5 percent, and less than 1 percent for mortgage loans.

People are more inclined to pay when they know the lender personally.

Dennis Roy, who used to run a Framingham hair salon till he retired to Florida, wanted to loan his son Brian $150,000 to buy a home. He stumbled across CircleLending while searching the Internet for advice on how to set up a person-to-person mortgage. "I thought, this is ideal," said Dennis. "I am receiving a 6.5 percent interest rate from him. That was still a better rate than a bank would have given him."

Brian, a physician in Allentown, Pa., is just as pleased. "I think it's worked out excellent," he said. "For a first-time buyer, I got a great rate."

For those who'd rather not borrow from friends, families, or strangers, there's Lending Club, a Sunnyvale, Calif., firm, launched in May in cooperation with the popular social networking site Facebook. Lending Club, which says it has already issued over $100,000 in loans, leverages Facebook's affinity groups. These groups, formed by millions of Facebook users, are built around shared interests -- attending the same college, for instance, or working at the same corporation.

Lending Club borrowers are put through a credit check. But they're also ranked according to their membership in Facebook groups. Lenders who belong to a Facebook group get a listing of creditworthy borrowers who belong to the same group.

John Donovan, Lending Club's chief operating officer, said group loyalty will ensure that borrowers repay the money. Besides, he said, lenders will feel more comfortable investing money with fellow Facebook group members. "It just goes back to the way it was a thousand years ago, when you lived in a certain village," said Donovan. "You know from experience whether you can trust a person in that village or not."

Peer-to-peer bankers face tough challenges. It's easy to enter the business; traditional banks or other Internet companies could quickly launch rival services. In addition, Celent analyst Mantha noted, peer-to-peer sites make their money on loan-origination fees, not interest payments. That means they'll need a constant stream of new or repeat users.

Advani estimates that Americans make 6 million person-to-person loans of $1,000 or more each year. If they capture even a fraction of that market, he said, peer-to-peer lending sites will prosper.

Hiawatha Bray can be reached at bray@globe.com.