Key takeaways
- Interest rate is the base cost of borrowing.
- APR adds certain fees for a fuller picture.
- Convert factor rates to estimates before comparing.
Best for
Anyone comparing two or more offers.
Interest rate
The cost of borrowing the principal, expressed as a yearly percentage.
APR
Annual percentage rate includes the interest rate plus certain fees, giving a more complete yearly cost.
Factor rate
A multiplier (e.g., 1.3) applied to the amount funded to get the total payback. It doesn't account for how fast you repay, so convert it to an estimated APR to compare.
Pros and cons
Advantages
- Comparing on APR levels the playing field
Things to weigh
- Not every product quotes APR
Frequently asked questions
Why is APR higher than the interest rate?
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Because APR includes certain fees, such as origination fees, in addition to interest.
Is a 1.2 factor rate the same as 20% interest?
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No. A factor rate doesn't account for repayment speed, so the equivalent annual cost can be much higher.
This guide is general educational information, not financial, legal, or tax advice. Terms, requirements, and availability vary by lender and your situation.