Will Bancroft's car used to sit for days on end outside his home, as he preferred public transport to get around. Fed up with watching it depreciate he decided to try a new website which would offer his car for rent to anyone nearby who needed a vehicle for a few hours or days.

Fifteen months on and Bancroft, who lives in the Battersea area of London, and runs a gold investment business, says it has been a success. He has rented out his Ford Mondeo around twice a month on average, and is covering most of the car's annual running costs with the £2,600 he has received.

If you own a car that spends days at a time outside your home without moving, is it time to consider offering it for rent to those living nearby and slash your motoring bills? Or alternatively, you could sell your car and use your neighbour's instead, for a fee.

Faced with ever rising bills, thousands of Britons have been using a website, whipcar.com, that is promoting car sharing in a whole new way.

"Love thy neighbour, drive their car" is WhipCar's motto, and to date it has built up a database of 19,000 owners willing to rent out their car for around £8 an hour, or £30 a day.

WhipCar launched its service two years ago to a sceptical audience, who questioned whether enough people would be prepared to rent their car to someone they had never met. Yet it has already clocked up 100,000 rental hours. It's not the lack of individuals willing to rent out their cars to neighbours that is holding back the service, it's a shortage of hirers – even though a Guardian Money price check found that WhipCar is cheaper than renting from the major car hire companies, especially if you want a larger car.

So how does it work? To hire a neighbour's car users simply log on and input their postcode, and up pops a map showing cars available nearby, and the hourly and daily price. You state the dates and times you want the car and it is then up to the owner to decide whether it's convenient.

Those hiring agree to pay the advertised charge, plus a £3 booking fee to WhipCar. The comprehensive insurance covering the rental period is due on top. This will vary according to car, driver's age, and the duration, but is typically £5-£6 a day. You pay for the petrol you use. You have to be aged 21-70 and have held a full licence for at least a year, with no more than two accidents in the past three years. This is all checked before you are accepted. You agree with the owner how and when, and off you go.

Those wanting to rent out their car face similar restrictions. The car has to be no more than eight years old, in good condition and clean inside. You can't have had a major accident in the past three years, and it can't be a high performance or high insurance group car. Owners can set the price they want to charge – bearing in mind what others in their area are charging. WhipCar takes 15% plus VAT (18% in total) of all rentals.

The key to its success has been its insurance model. While the car is being hired out it is comprehensively covered by WhipCar's own insurance policy – so if the car is written of by a hirer it will not affect the owner's insurance policy, and raise premiums as a result.

Drivers involved in an accident when driving a WhipCar are liable for the first £500 of damage caused. By paying an extra £5 per day they can lower this to £250. Equally, there is nothing to stop users buying excess cover from iCarhireinsurance.com, which costs £3 a day ( £40 for an annual policy) and reduces the excess to zero.

At the end of each rental both parties get to rate each other with eBay-style feedback, which soon roots out any bad renters.

Vinay Gupta, WhipCar's co-founder, says the service aims to have a car available within a five-minute walk of most urban dwellers. "Some people need to own a car and WhipCar offers them a way to do so more sensibly. Increasingly customers are asking us what kind of car they should buy to let. Why wouldn't you make money from your car when it's not being used? Our members who prefer not to own a car, for environmental or financial reasons, simply use their neighbour's when they need one."

He says a quarter of the cars available for rent are currently in London, although the scheme is spreading out of the capital, too.

When Money staff looked at what was available in their areas there was a good selection of cars on offer. It's quite possible to hire a small car via the site for £40 a day all in, which will undercut most car hire operations and car clubs by around £10 a day.

However, where WhipCar really wins is if you need as bigger car such as a people carrier. Traditional hire firms always load the rental costs for such cars, charging around £150 a day. Prices on WhipCar are about 30%-50% of that.

Bancroft has found renting out his car "surprisingly easy". He says: "I have only had one minor problem when one renter came back with a slight scuff on the car. It was easily fixed – he gave me £40 and I spent an hour or two rubbing it out."

He says most of his hirers live nearby and usually take the car for the weekend. If he needs the car that weekend he simply blocks the dates out on the website.

"I've now got a couple of regulars, which is good. I guess you've got to be flexible to make it work. I try to deal with people as I would hope to be treated. I was recently late in dropping the car off so I told the renter not to put in any petrol in it as recompense. If a hirer wants to drive a huge distance I might ask them to put a bit more petrol in when they return it."

He says he informed his insurer that he was taking part in the scheme, and says he will talk to his accountant about declaring the £2,600 he has made from rentals.

Meanwhile, it looks as though WhipCar could soon have a rival. EasyCar is undertaking a feasibility study into offering a similar scheme. A spokesman says it hopes to get up and running by October if the two key obstacles of insurance and finding a way to switch car keys can be overcome.