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Factor Rate vs. APR
Why a 1.30 factor rate and a 30% APR are not the same thing — and how to think about the difference.
It's tempting to convert a factor rate into something that looks like an interest rate for comparison. Resist that instinct without doing the full math — a factor rate and an APR measure fundamentally different things.
APR (annual percentage rate) reflects the cost of borrowing over a year, accounting for time. A factor rate is a flat multiplier that doesn't change based on how long repayment takes. The same 1.30 factor rate can represent a very different effective annualized cost depending on whether it's repaid in 4 months or 12.
A rough way to think about it
If a $100,000 advance at a 1.30 factor rate ($30,000 in cost) is repaid over 6 months, the annualized cost is roughly double what it would be if repaid over 12 months — even though the factor rate never changed. This is why shorter repayment periods on an MCA can carry a higher effective annualized cost than the factor rate alone suggests.
The practical takeaway: ask your funding provider for the total payback amount and estimated repayment period, and use those two numbers together — not the factor rate alone — to judge the real cost of an offer.