What APR actually measures
APR expresses the cost of borrowing as a yearly percentage, folding in interest and most fees. Its purpose is comparison: two loans of the same length can be ranked by APR reliably.
It assumes a conventional amortising loan over a defined period. The further an offer sits from that shape, the less the APR tells you.
Why a factor rate is not an APR
Short-term funding is often priced as a factor rate. A factor of 1.3 on $50,000 means you repay $65,000 — the cost is fixed at the outset rather than accruing over time.
Converting that to an APR produces alarming-looking numbers, because APR annualises a cost that was never annual. A four-month facility expressed as an APR looks like a very different product from what it is. Neither the low headline factor nor the scary converted APR tells you what you actually want to know.
The figure that always works
Ask for the total dollars repaid. It compares cleanly across every structure — loan, advance, factoring, line of credit — and it cannot be dressed up.
Worked comparison
| Offer A | Offer B | |
|---|---|---|
| Amount | $50,000 | $50,000 |
| Quoted as | 1.25 factor | Monthly rate |
| Total repaid | $62,500 | $61,000 |
| Term | 6 months | 9 months |
| Payment pressure | Higher | Lower |
B costs less in total and spreads further. But if the cash it funds turns over in eight weeks, A may still be the better fit. Total cost and payment pressure are two different questions and both matter.
Common questions
Is a factor rate the same as interest?
No. A factor rate is a fixed multiple of the amount advanced, set at the outset, rather than interest accruing over time.
How do I convert a factor rate to APR?
You can, but be careful — annualising a short-term fixed cost produces a figure that overstates how the product behaves. Compare total dollars repaid instead.
Does paying early save money?
Sometimes. Some agreements discount early repayment, others fix the total. Ask before signing.
Which offer should I take?
The one where total repayment and payment timing both work against what the money is buying. Use our factor rate calculator to see the real numbers.
See what you qualify for
Same-day decision. Applying takes a few minutes and will not affect your credit score.