Understanding cost
APR vs. factor rate: what’s the difference?
Two ways of expressing cost that are easy to confuse. Here is how to read each one.
Written by Fundrillo Editorial TeamReviewed by [VERIFIED REVIEWER — financial-services]
Last updated August 1, 20265 min read
Cost can be expressed in more than one way, and the two most common — APR and factor rate — are easy to confuse. Understanding each helps you compare offers accurately.
APR (annual percentage rate)
APR expresses the yearly cost of borrowing as a percentage, and it typically folds in certain fees. Because it is annualized, it is useful for comparing products on a like-for-like basis.
Factor rate
A factor rate is a decimal (for example, 1.2) multiplied by the amount financed to give the total repayment. It is common with some short-term products. A factor rate is not the same as an interest rate and does not annualize on its own.
Important to know
When comparing, convert costs into a common measure where you can, and always look at total repayment, not just the headline number.