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A factor rate is a method used by some lenders, especially in the merchant cash advance industry, to determine the cost of borrowing. Unlike interest rates, a factor rate is a fixed amount that's determined at the start of the loan and doesn't change over time.
A factor rate is typically represented as a decimal figure, such as 1.2, which means that for every dollar borrowed, the borrower will repay $1.20. While a factor rate might seem simple and straightforward, it can often translate to high-cost borrowing, especially when compared to traditional annual percentage rates (APRs).
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