ZOPA has been ranked among the cheapest personal loans currently on the market but there are warnings that borrowers are unaware of how low rates can be.
Research by comparison website Compare the Market found the average annual percentage rate on many personal loans, include the P2P lending giant, is around 2.9 per cent.
However, a poll of more than 2,000 adults by Compare the Market found one-quarter believe the average rate sits between 11 and 50 per cent.
The website suggested borrowers may also be confusing personal loans with payday loans, which often have a representative APR of 1,266 per cent.
It claimed 20 per cent believe personal loans are too expensive to pay back.
Despite the competitive interest rates available, 58 per cent admitted they had no idea what their credit score was and 82 per cent said they had never researched how much they could borrow via an online soft checker before applying for a personal loan.
“Personal loans are a sensible solution for many people, especially if you are looking to borrow a larger amount of money for a one-off purchase or project,” John Crossley, director of money at Compare the Market said.
“For borrowers who want the discipline of making a fixed monthly repayment, personal loans can be preferable to a credit card where you have the flexibility to pay what you like every month, as long as it is above the minimum payment. In many cases, personal loans also have lower interest rates than credit cards.
“When applying for any sort of credit, it’s important to take the time to understand how likely you are to be accepted.
“Repeated credit checks can damage your credit score but completing a soft check online will give you an idea of how much you can responsibly borrow without putting a black mark against your name.
“Interest rates can vary significantly between providers, so it is always a good idea to shop around for the most competitive loan which offers the best deal.”