Also called: Buy rate
Factor rate
A factor rate is a multiplier applied to the amount advanced to arrive at the total repayable. It is used mainly by short-term unsecured lenders and merchant cash advance providers, and it is not an annual interest rate, so it cannot be compared directly with one.
What is a factor rate?
A factor rate is a multiplier applied to the amount advanced to arrive at the total repayable. It is used mainly by short-term unsecured lenders and merchant cash advance providers, and it is not an annual interest rate, so it cannot be compared directly with one.
Example
A factor rate of 1.18 on a $40,000 advance means $47,200 is repayable in total, regardless of how quickly it is repaid.
Why it matters
Because the cost is fixed at the outset, repaying early usually saves little, and the effective annual cost is far higher than the number suggests.