In short
A factor rate expresses the cost of financing as a multiplier (for example, 1.20) rather than an annual percentage. You multiply the amount advanced by the factor to see the total amount repayable.
Factor rates are most common on shorter-term or working-capital products. The math is simple but works differently from an interest rate:
Because a factor rate is a flat multiplier, it isn't directly comparable to an annual percentage rate — the same factor can represent very different effective costs depending on the term. When comparing offers, convert the total cost to an annualized figure or ask the lender to express it as an APR so you're comparing like with like.
No. A factor rate is a flat multiplier applied to the amount advanced, while an interest rate is charged on the declining balance. The same factor can mean very different effective costs depending on the term.
Convert it to an annualized cost so you can compare it against interest-rate offers on the same term. A short term can make a low-looking factor quite expensive on an annual basis.
General information only. This page is educational and does not constitute financial, legal, or tax advice. All financing is subject to credit review and lender approval. Rates, terms, and eligibility vary by applicant, asset, and lender, and are not guaranteed. Any figures or examples are illustrative. Please speak with a qualified advisor about your specific situation.