Key takeaways
- A factor rate is a multiple of the amount borrowed, not an annual interest rate.
- Shorter terms make factor-rate loans look cheap per month but expensive per year.
- Always compare total cost, fees and early-payout rules, not just the headline number.
What a factor rate is
A factor rate is a decimal, usually between 1.10 and 1.50, that you multiply by the amount borrowed to get the total you repay. Borrow $50,000 at a factor rate of 1.20 and you repay $60,000. There is no compounding and the cost does not fall if you repay early.
Why it looks cheaper than it is
Most factor-rate products run 6 to 18 months. Paying $10,000 to borrow $50,000 over 12 months is an effective annual rate of roughly 35% once you account for the declining balance, even though "20%" sounds like a mid-range rate.
How to compare properly
- Ask for the total repayable and the term in months.
- Ask whether early payout reduces the cost.
- Add every fee — establishment, direct-debit, and any broker fee.
- Compare that total against an amortising loan for the same amount and term.
Your Lyft Money broker does this side by side before anything is submitted to a lender.
Definitions
Factor rate
A factor rate is the total amount repayable expressed as a multiple of the amount borrowed. Unlike an interest rate it does not fall as the balance reduces.