How do I compare the cost of two different

2 min read

Different structuresAPR, factor, discount

Common periodCompare over the same weeks

Total in poundsThe universal unit

Weigh the fit tooCost isn't everything

Why headline numbers don't compare

A term loan quotes an APR, a merchant cash advance a factor rate, invoice finance a service fee plus a discount charge, an overdraft a rate on the dip. These are different measures — comparing the headline numbers directly is meaningless. A '1.3 factor' and a '12% APR' cannot be ranked as they stand. The only common language is total pounds spent. See APR vs factor rate.

Reduce everything to a total over a common period

Pick a realistic period — the time you will actually use the money — and work out what each product costs in pounds over it, given how you will use it. For the loan, the interest and fees over that period; for the MCA, the factor cost over its repayment window; for invoice finance, the service and discount charges over the same weeks. Now they are comparable, because they are all money. See working out true cost.

Then weigh fit, not just cost

Cost ranks the options, but the cheapest is not automatically right — the products behave differently. Invoice finance flexes with your ledger; an MCA flexes with sales; a loan gives a fixed, predictable cost; a facility gives on-demand flexibility. Choose the one whose cost is competitive and whose behaviour fits your cash flow. See is the cheapest always best.

Put the totals side by side on the true cost calculator, and to add a term-loan quote to the mix, apply.

Frequently asked questions

Can I compare a merchant cash advance to a term loan directly?

Not on the headline numbers — a factor rate and an APR measure cost differently. To compare them, convert each to the total pounds it will cost over the period you will actually use the money, allowing for the MCA's short, variable repayment window. Only as a total cost in pounds do the two become genuinely comparable. Then weigh the loan's predictability against the MCA's flexibility.

Which product is cheapest for short-term cash flow?

It depends on the exact need and how fast you repay, but for very short, occasional gaps an overdraft or revolving facility — where you pay only for what you use — is often cheapest. For a defined short-term sum, compare a short-term loan's total against an MCA's factor cost. Reduce each to pounds over the same period and let that, plus fit, decide.