NEO Finance Review
Last updated on 08 June 2021 by Reza
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NEO Finance is one of the smaller to medium-sized P2P platforms (May 2021). The platform has been around since 2015 and has grown steadily since then. The consumer loans on NEO Finance are granted directly by the platform and mediated to investors.
NEO Finance is headquartered in Lithuania and obtained an E-Money License (EMIL) relatively early compared to other well-known P2P platforms, which virtually eliminates platform risk.
Introducing NEO Finance as a P2P platform
NEO Finance, AB at a glance
- More than 13,000 registered investors
- Approx. €70 million in loans granted
- All consumer loans are issued in Lithuania
- Investors can invest fully automatically and manually
- Investors can expect an average return of 12% p.a. before taxes
- Minimum amount of €10 to start investing
- Secondary market is offered
- Investors have to pay a withholding tax of 15% on the income from loans, which pushes the expected return to below 11% p.a.
- A tax certificate is offered
Who can invest in NEO Finance?
Only private individuals residing in a country of the European Union can invest on NEO Finance.
How P2P loans are offered on NEO Finance
The P2P platform NEO Finance grants its loans directly. After a loan is approved by the platform and a rating is assigned, investors can invest in the loan. This means that the loans are not pre-funded, as is the case, for example, with P2P platforms that work with loan originators.
However, borrowers from Lithuania cannot apply for a loan directly on NEO Finance. Lending is done under the Paskolu Klubas brand.
Example: Lending on the Lithuanian website Paskolu Klubas
Ratings on NEO Finance
NEO Finance offers A+, A, B, C and C- ratings. A loan with an A+ rating has the highest credit score, while the opposite is true for a loan with a C- rating.
Collateralization of loans on NEO Finance
Only unsecured consumer loans are offered on NEO Finance.
Experience with NEO Finance as P2P platform
Since the platform has been on the market, no major problems or other difficulties have occurred. Also, no major bankruptcies or sudden accumulation of loan defaults occurred. This is typical of platforms that issue their loans directly. Unlike P2P marketplaces, there is no risk of a loan originator speculating which could result in many loans defaulting at the same time.
Stability is important to the founders and management of NEO Finance. In this context, the platform has created the Provision Fund. Put simply, investors can voluntarily invest a portion of their return into the Provision Fund to protect themselves from loan defaults and missed interest payments. NEO Finance is the only P2P platform that offers such additional protection to its investors.
However, in the past, the platform had some technical weaknesses and signing up as an investor was very complicated and took a long time. However, the platform has been working on this and now it only takes a few minutes to register as an investor on NEO Finance as well.
How did NEO Finance perform during the Corona crisis?
NEO Finance did well to very well during the Corona crisis. Since the platform grants its loans directly, it was able to react quickly to the crisis and did not have to negotiate with loan originator about necessary measures.
The fact that the Corona crisis had hardly any impact on the platform can be well demonstrated by the loans brokered. The crisis can hardly be observed in the figures. It can only be seen that the platform brokered fewer loans for a short period at the beginning of the Corona crisis.
This is a typical picture that can be seen with platforms that either broker their loans directly or broker loans from loan originators owned by the parent company as part of a corporate structure.
Other P2P marketplaces, such as Mintos, had to work closely with the loan originators to overcome the crisis. Because Mintos does not have direct control over the loan originators, the platform ultimately relies on its ability to work with the loan originators to find appropriate measures to prevent harm to investors.
Many investors have resented this to Mintos, for example, but in our opinion, investors in P2P marketplaces must expect exactly this risk. On NEO Finance, investors are not exposed to the risk that loan originators can go bust.
Advantages and disadvantages of NEO Finance
- On NEO Finance you can manually select the loans you want to invest in, or you can invest automatically.
- If you are a conservative investor, you can additionally hedge your investments with the Provision Fund.
- Investments on the primary market are free of charge for you as an investor.
- For withdrawals from your account at NEO Finance you have to pay a fee of €0,29.
- On NEO Finance the loans are issued with repurchase guarantees. As with other platforms, the value of the guarantees depends on the creditworthiness of the lender. If the platform gets into financial difficulties, it will probably not be able to keep the guarantees. As a result, the buyback guarantees can give you a false sense of security.
- If NEO Finance goes bankrupt as a platform, you risk the total loss of your investments.
Register as an investor with NEO Finance
On NEO Finance you can easily register as an investor online. The registration itself takes only 5 minutes.
1. Register as a user on NEO Finance
On the NEO Finance website, click on the "Sign up" button in the upper right corner. Then click on the "Investors" button.
In the first step you have to enter your cell phone number.
After that you have to enter your e-mail address and choose a password.
2. Open an account with IBAN number
On NEO Finance you will get an account with your own account number (like your current account).
In the overview you press the button "CONTINUE".
After that you will be asked for more information about yourself, including your first name, last name and citizenship.
3. Verify your identity and deposit money
The registration as an investor is completed by verifying your identity. To do this, simply follow the instructions on the page.
Unlike other platforms, you do not need to verify your account because NEO Finance opens an account for you. But, when you deposit money to your account for the first time, the account you transfer from should be in the same name as the user account at NEO Finance.
Deposits and withdrawals to NEO Finance
If you want to deposit money into your NEO Finance account, you only need to deposit the amount into the account that NEO Finance has opened for you.
To deposit money, click on the amount next to "ACCOUNT BALANCE" in the top menu. After you have opened the account, it will correctly show 0.00 €. Then click on "DEPOSIT" in the menu.
After that you will be shown which information you have to enter for a bank transfer in order to deposit money to your NEO Finance account. As recipient and IBAN you enter what is displayed under "Recipient" and under "IBAN".
A deposit by bank transfer usually takes only 1 to 2 days.
You can also deposit money via other providers, for example via Revolut, then it is a bit faster.
If you want to withdraw money, click on the amount next to "ACCOUNT BALANCE" in the top menu. Then click on "WITHDRAWAL" in the menu.
Now you just have to specify the amount you need to withdraw. The money will be credited to the account from which you first transferred money to your NEO Finance account.
Investing in P2P loans on NEO Finance
On NEO Finance you can invest in P2P loans automatically with a few clicks.
You can invest in P2P loans either automatically or manually.
With the Auto Invest function you can invest in P2P loans on NEO Finance in a fully automated way.
The Auto Invest function provides you with standard and advanced settings that allow you to invest specifically in P2P loans. For example, you can go so far as to invest only in loans given to men (which is somewhat uncommon).
The most important settings are:
- Investment amount per loan
- Ratings in which to invest
- Minimum and maximum interest rate
- Loan term (in months)
- Use of the Provision Fund (only for ratings from A to C)
NEO Finance is especially practical in that it immediately shows you the volume of loans brokered in the last 30 days with the settings you have made. If you set some settings too narrow, you can then immediately see that only a few loans (or even none) will match your settings.
For P2P loans, the rule of thumb has proven to invest a maximum of €10 to €20 per loan to limit the risk, which emanates from individual loans. It is also recommended not to invest in too long maturities, even if there is a secondary market on NEO Finance because you cannot be sure that you will always find a buyer for your loans.
On NEO Finance you have the possibility to choose every single loan you want to invest in. However, this is not recommended, as it would require a lot of regular effort. Imagine you would invest €5,000, divided into €10 per loan, then you would have to select 500 loans individually at the beginning and constantly reinvest the due loans.
NEO Finance offers a Provision Fund, in which you can invest a part of your return. If unexpected difficulties arise with the loan, the Provision Fund steps in for the borrower. However, the Provision Fund does not cover the entire remaining term of the loan. After a loan is delayed for 60 to 130 days, NEO Finance will call in the loan at a certain point, and you will get back your invested capital and any interest still due.
With the Provision Fund you can only secure investments in loans that have a rating of A, B or C. Loans with a rating of A+ are already fully covered by the buyback guarantee.
Secondary market on NEO Finance
NEO Finance offers a secondary market where you can sell your loans to get your money in the short term.
What returns can investors expect on NEO Finance?
As an investor on NEO Finance, you can expect an average return of 12% per year.
What costs and fees does NEO Finance charge investors?
Investing on NEO Finance is free of charge for you as an investor. But for withdrawals from your account you have to pay €0.29.
For purchases and sales on the secondary market, NEO Finance charges a fee of 1%.
Can you automatically invest in P2P loans on NEO Finance?
Yes, on NEO Finance you can invest in P2P loans fully automatically with the Auto Invest feature.
Can you select individual loans on NEO Finance?
Yes, on NEO Finance you can invest in individual loans, but it will likely take a lot of effort and time to make sure you spread your investments.
Risks of investing on NEO Finance
With P2P lending you always have to consider various risks. A particularly important risk in this context is the credit default risk. The credit default risk is about the fact that loans can default if the borrowers can no longer pay, as an investor you must then expect losses.
The credit default risk can be limited by investing a large portion in P2P loans with better ratings, on NEO Finance this would be P2P loans with ratings A+, A and B. Better ratings are given to loans that are less likely to default.
How reputable is NEO Finance?
Since NEO Finance is supervised by the Lithuanian Financial Market Authority, we would rate the platform as very reputable.
How does the buyback guarantee on NEO Finance work?
After a loan is delayed for at least 60 days, or a maximum of 130 days, the buyback guarantee on NEO Finance kicks in. Depending on the rating of the loan, you as an investor have the possibility to return the loan with a discount. If you have a VIP status on NEO Finance, you will receive a 10% surcharge on the return price for all loans.
|No VIP status (up to €5.000)||VIP status (from €5.000)|
If you have invested in a loan and secured it with the Provision Fund, you cannot sell the loan back to NEO Finance. Instead, you will be compensated from the Provision Fund.
What are the default rates on NEO Finance?
NEO Finance does not publish default rates. But, NEO Finance states how many loans have experienced delays of more than 720 days (2 years), which is basically a loan default. Approximately 3.58% of all loans on NEO Finance are more than 2 years late.
Compared to other platforms where default rates range from 5% - 10%, default rates on NEO Finance are much lower.
Are the loans on NEO Finance protected by the deposit insurance?
No, the loans on NEO Finance are not protected by deposit insurance such as the FDIC insurance.
Paying taxes on income from P2P loans on NEO Finance
When you invest in loans on NEO Finance, you have to pay withholding taxes on the earnings. While on other platforms you can avoid the taxes by obtaining a residency certificate, on NEO Finance you can only reduce the withholding taxes from 15% to 10% by obtaining a residency certificate.
This is a bit annoying for you as an investor, but even after deducting the withholding taxes you can still expect a return of 10% p.a. on average.
Prepare your tax return on NEO Finance
On NEO Finance you can easily get the information you need for your tax return. First click on the menu item "Settings", then on "TAX DATA" in the menu.
After that you only have to enter the desired year, and then you will get a list of all the income you received during that year.
Unfortunately, it is not possible to download the overview as a PDF file. However, you can print the page or simply save the page as a PDF file, which should suffice as proof.
Start investing now on NEO Finance
Whether you like NEO Finance as a platform, you can only find out yourself. The best thing to do is to register on the platform now and see for yourself which loans you would like to invest in.