🧮 Factor Rate Calculator
What Is a Factor Rate?
A factor rate is the cost multiplier used in merchant cash advances (MCAs) instead of a traditional interest rate. It’s expressed as a decimal — typically between 1.1 and 1.5 — and is multiplied by your advance amount once to determine your total repayment obligation.
Unlike an interest rate, a factor rate is applied to the full advance amount upfront and does not reduce as you repay. This means you cannot save money by repaying early — the total fee is fixed from day one.
The Factor Rate Formula Explained
Total Repayment = Advance Amount × Factor Rate
Total Fee = Total Repayment − Advance Amount
APR Equivalent = (Total Fee ÷ Advance Amount) ÷ (Months ÷ 12) × 100
Factor Rate to APR Conversion Table
Factor Rate vs Interest Rate
| Feature | Factor Rate (MCA) | Interest Rate (Loan) |
|---|---|---|
| Applied to | Full advance amount, once | Remaining balance, over time |
| Early repayment benefit | None — fee is fixed | Yes — less interest accrues |
| Regulated | No | Yes |
| Typical cost range | 10–50% of advance total | 7–50% per year |
Common Factor Rate Mistakes to Avoid
Comparing factor rates without considering repayment speed
A 1.2 factor rate repaid in 3 months is 80% APR. The same factor rate repaid over 12 months is only 20% APR. Factor rates only tell you the total cost — not how expensive that cost is relative to time. Always convert to APR using repayment time.
Ignoring additional fees
Many MCA providers charge origination fees, administrative fees, and wire transfer fees on top of the factor rate. Always ask for the total amount you will repay — not just the factor rate — before signing.
Assuming early repayment saves money
Factor rate fees are fixed. If you repay in 3 months instead of 6, you pay the same total fee — but your APR doubles. There is no financial benefit to repaying an MCA early unless the contract explicitly offers an early repayment discount.
MCA providers never disclose APR — they only show factor rates because the numbers look small. A factor rate of 1.35 sounds harmless. A 70% APR equivalent on a 6-month advance does not. Always convert to APR before comparing any MCA offer against a bank loan or line of credit.
Frequently Asked Questions
Is an MCA Really Your Best Option?
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