Compare the cash you actually receive with everything you must pay—and when.
Put four numbers side by side
Two offers can advertise similar amounts and still leave very different room in your budget. Ask each provider for the same information in writing.
“Principal” is the amount borrowed. An origination fee is a charge for arranging or making the financing. If it is deducted upfront, the amount deposited can be smaller than the stated funding amount.
A simple dollar-cost example
If required repayments total $24,000, the dollar cost relative to cash received is $5,000: $24,000 − $19,000. Additional required charges would increase that cost.
This comparison does not account for time. Paying $24,000 over six months creates a different burden from paying it over two years. The figures above are invented solely to show the arithmetic.
Interest rate, APR, and factor rate are different
An interest rate describes a borrowing charge. APR—annual percentage rate—expresses an annualized cost and may include certain fees. Ask what a quoted APR includes.
A factor rate is a multiplier, not an annual percentage. In a simplified example, $20,000 × 1.20 = $24,000 in scheduled payments before additional charges. That is not a 20% APR: time and repayment timing still matter.
Financing disclosures vary, so a headline rate alone may not allow a fair comparison. The Federal Reserve explains the distinction. Ask for an annualized comparison and the written payment schedule rather than converting a factor rate directly to a percentage APR.
Ask what changes the cost
- Paying early: Does it reduce interest or the contracted amount, or is there a penalty?
- Variable pricing: Can the rate change, and what happens to payments?
- Missed payments: What late charges, default triggers, or collection costs apply?
- Broker compensation: Who receives a fee, who pays it, and is it refundable?
Get a complete agreement before deciding. If you cannot explain the total cost and collection schedule in your own words, pause and ask for clarification.
A cheaper-looking offer can still be the wrong fit
A smaller total repayment is not automatically easier to manage if payments are collected much sooner. Compare both cost and the cash left to operate. Avoid comparing one offer’s monthly payment with another offer’s daily collection.
Continue with the cash-flow walkthrough, then use the provider question list before you sign.
Sources & further reading
General education, not an offer or individual financial, tax, or legal advice. Educational coverage does not establish provider availability or affiliation.
