Factor Rate to Interest Rate Calculator
Use our calculator below to instantly convert a factor rate into an equivalent interest rate, helping you compare funding costs in seconds.
1.20
20%*
Calculator is for illustrative purposes only.
*Flat rate only, not APR.
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Check Eligibility Takes 30 seconds with no credit impactWhat is a factor rate?
A factor rate is a fixed multiplier used to calculate the total repayment on a loan or cash advance. Instead of accruing interest over time, the lender applies the factor rate to the original amount upfront. For example, a £10,000 advance with a factor rate of 1.3 means you repay £13,000 in total.
What is the difference between a factor rate and an interest rate?
A factor rate determines a fixed total repayment amount upfront, while an interest rate accrues over time and is usually expressed annually (APR). Interest rates decrease as you repay the balance, whereas factor rates remain fixed, often making them more expensive when annualised.
Why do merchant cash advance lenders use factor rates instead of interest rates?
Merchant cash advance lenders use factor rates because they provide a simple, fixed repayment amount based on the advance, rather than fluctuating interest over time. This suits the flexible nature of repayments, which are often tied to daily card sales, and allows lenders to price risk more easily for businesses with variable revenue or lower credit scores.
Is a factor rate the same as APR?
No, a factor rate is not the same as APR. A factor rate shows the total repayment as a multiple of the borrowed amount, while APR represents the annual cost of borrowing, including fees and time. Because factor rates don’t account for the repayment period, they can appear lower but often translate into a higher effective APR.