Neo Finance review: 1 year since I started investing

Neo Finance is the leading p2p consumer lending platform in Lithuania. While not very popular, it’s the most transparent and safest platform in the Baltics.

I first heard about Neo Finance during an equity crowdfunding round on Seedrs. They were raising funds to expand their operations and, before I invested in them, I wanted to test out their platform.

There were a few things I liked about them, and decided to invest more:

  • they have an electronic money license, and my account has its personal IBAN number; it’s the only Baltics p2p lending platform that actually has that
  • the loans issued to their clients have decent interest rates, between 10% – 40%, unlike most non-banking lenders in Europe
  • they offered full transparency on their operations, with audited financial statements, regular updates, reports on defaults and debt recovery rates
  • they also offered a provision fund for risk-averse investors, to cover for unexpected payment delays or borrower defaults
  • they had a comprehensive business continuity plan in case of insolvency, and so far this is the only Baltics platform that has one

Platform highlights

  • Launched: 2015
  • Headquarters: Lithuania
  •  Loan types: Consumer Loans
  • Loan terms: up to 7 years
  • Loans funded: 51 million EUR
  • Loans from: Lithuania
  • Investors: 11000
  • Interest rates: 6% – 27%
  • Fees: 0.29 EUR on withdrawing funds (unless you invested more than 5000 EUR on the platform and become a Bronze Investor)
  • Minimum investment: 10 EUR
  • Currency: EUR
  • Secondary market: yes
  • Auto-invest: yes
  • Buyback guarantee: yes, for 50% to 80% value on the defaulted loans, based on credit rating
  • Other securities: provision fund to cover missed or late payments
  • Accepted investors countries: EEA countries

How does Neo Finance work

Neo Finance is a true p2p consumer lending platform. It acts as an intermediary between borrowers in need of funds and investors willing to lend them.

Besides acting as an intermediary, it also does credit risk assessments and decides on a fair interest rate for each loan application. In case of default or payment delays, it also handles communications with the borrowers and debt recovery procedures.

All approved loan applications are published on the site and have 2 weeks to get funded. If they don’t get fully funded, the application is removed and any invested funds are returned to their investors.

Neo Finance uses and automated tool for credit assessments, and ranks credit applications from A+ to C. C-rated loans offer higher interest rates but also have higher default rates.

As of 2020, 12.81% of the issued loans are more than 90 days late with their payments. Given the nature of the industry, these numbers are quite low. You can see below the distribution of the late loans based on credit ratings and the debt recovery rate.

neo finance defaulted loans and debt recovery statistics

First steps on Neo Finance

You can open an account if you are a resident of the EEA (European Economic Area) countries. You’ll need proof of identity (ID card or passport) in order to get an IBAN account. There are 2 options for KYC. One involves using a camera and the other just lets you upload a passport copy. If you don’t use the camera you’ll get a restricted investor account (limited to 1000 EUR?).

Adding money to my account was surprisingly fast. The Neo Finance platform offers investors a personal IBAN number to add money to. It took less than 30 minutes to transfer money to my account (transferring money from Revolut).

My first investments

neo finance primary market and loan offers

The thing I noticed immediately was the low number of available loans. I was used to platforms like Mintos, with hundreds of thousands of available loans, from multiple loan originators.

Neo Finance usually has 10-20 loans available, and they all get funded in a few days. The investors base is still relatively small (only around 11,000 investors) and even if it doubled since last year, its growth is still rather slow.

You can see more details about a specific loan on the loan page. The borrower details include age, income, work experience and sector, other loans, and debt history. On the loan details section, you can see the estimated return based on the amount you plan to invest.

There’s also this nice check to enable/ disable the Provision fund service. If the provision fund service is enabled, you’ll expect a lower return from the credit, but in case the borrower is late with their payments, NEO Finance will cover the payments. Neofinance will use the money accumulated in the provision fund to cover the payments the investors would otherwise miss.

NEO Finance offers also a buyback guarantee policy. If you don’t choose to enable the provision fund service and the loan you invested in defaults, you can sell it to Neofinance for 50-80% of the loan value, depending on the loan risk rating.

The secondary market

The secondary market proved a bit disappointing for me. Most of the offers available were sold at a premium, and with no reason at all. There were always better offers on the primary market, and after a few months, I decided to give it up completely. While it’s a good option for me to sell my loans fast in case of emergency, I don’t think I’ll use it soon.

However, other investors are using it, according to the latest Neo Finance report.

neo finance secondary market transactions

The recent peak in activity was most likely caused by the panic caused by the current coronavirus crisis.

Auto invest

neofinance auto invest

As with most p2p lending platforms I’m invested in, I soon got bored of manually investing in individual loans, and decided to turn on an auto-invest profile.

The auto-invest feature lets you create different profiles for the primary and secondary markets. It lets you choose the amount you want to invest in a single loan, the loan rating, interest rates, and loan term. You can also choose to enable the provision fund service. You’ll get a lower interest rate but you’ll never miss a payment.

For a more granular control of the auto-invest portfolio, you can choose the type of loans you want to invest in, the loan amount range and many details about the borrower: education, age, gender, available assets (car, flat, house), marital status, work experience, even if this is their first loan or not.

Investing with or without a provision fund?

When investing in loans using the provision fund, you pay the provision fund fees in advance. In the long run, you get a steady income and you don’t worry about late payments. In the short term, your profit will be negative for a few months until the interest payments cover the fees you paid when you invested in the loan.

While the provision fund sounds like good protection for rainy days, it also has its downside. If a loan defaults too soon, you’ll only get your funds invested in the provision fund, and no extra interest.

Without a provision fund, Neo Finance offers to buy back overdue loans from investors at a rate of 50% to 80% of the invested principal if the investors don’t want to wait for the debt recovery procedures to finalize. (A reason you might not want to wait is that it takes a long time and your funds are locked. After 24 months, 75% of the loans are recovered. After 27 months, 88%.).

My portfolio

neo finance portfolio evolution between November 2018 and May 2020
  • Last update: May 2020
  • Started Investing: November 28th, 2018
  • Current value:1935 EUR
  • Earnings: 65 EUR
  • Annual return: 8.68%

For almost a year I’ve only invested in loans covered by the provision fund, sacrificing my early returns in the hope of a safer portfolio in the future.

At some point it dawned to me that I didn’t like the provision fund too much, and it was a bit too expensive for the protection it offered. I decided instead to invested only in A-rated loans, and discarded the provision fund entirely.

Currently, only around a 3rd of my portfolio is still covered by the provision fund, and I don’t miss it. Less than 1% of my portfolio has payment delays, and I’m happy with my choice.

neo finance portfolio overdue payments details

Conclusions on NEO Finance

I like the e-money license institution approach Neo Finance is using. You have your own IBAN account in a Lithuanian bank. In case something happens with Neo Finance, your money is safe in your bank account.

The buyback guarantee feature is a bit different than the one offered by other platforms. NEO Finance will buy bad loans from you at 50-80% of the loan value. You won’t lose all your money, but you’ll still lose a part of it.

The Provision Fund service is a nice touch and it looks like a sustainable model. It’s something similar to loan insurance. You pay a monthly small fee that accumulates into a fund and defaulted loans or late payments are covered from this fund. However, its structure is too complicated and it doesn’t work for me.

My returns haven’t been great in the beginning, but recently I started to value more stability and transparency over high returns. To this end, Neo Finance is the perfect platform for me.

If you want to register on the platform, you’ll get a 1% bonus on all investments made in the first 3 months if you use my referral link. (I also get the same bonus)