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Definition
A factor rate expresses the cost of borrowing as a multiplier of the amount advanced. A factor rate of 1.2 on a £10,000 advance means you repay £12,000 — £2,000 in cost — regardless of how quickly you repay. Unlike an APR, it does not account for the repayment period, so a factor rate repaid quickly can equate to a very high annualised cost.
Factor rates are common on merchant cash advances and some revenue-based products. Always convert one to an APR-comparable figure with the factor rate to APR calculator before comparing — see APR vs factor rate.
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