Two ways of expressing the same money, built to feel very different. Here is how to see past the framing.
If you have ever compared a bank loan to a merchant cash advance and found the comparison confusing, that is by design. Loans are quoted in APR — an annualized percentage rate. Advances are quoted as factor rates. They measure the same thing, cost of money, but they are built to feel incomparable.
APR expresses the cost of borrowing as a yearly percentage, including most fees. It is time-aware: it tells you what the money costs per year, so a 20% APR and a 40% APR are directly comparable.
A factor rate is a flat multiplier with no time built in. 1.35 means you repay 135% of the advance. Whether you pay it back in four months or twelve, the multiplier is the same — which means the shorter the term, the higher the true annualized cost.
The only way to compare an advance to a loan is to convert the factor rate into an approximate annualized cost. Use the calculator in our cost-analysis guide, or ask any funder for the estimated APR-equivalent in writing. A reputable one will provide it.
A specialist will walk through your specific advances with you and lay out the real numbers in plain language.
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