The term cos φ is called the power factor and is an important parameter in determining the amount of actual power dissipated in the load. In practice, power factor is used to specify the characteristics of a load.

For a purely resistive load φ =0 Degree, hence Unity Power Factor

For a capacitive type load I leads V , hence Leading power factor

For an inductive type load I lags V , hence Lagging power factor

Clearly, for a ﬁxed amount of demanded power, P , at a constant load voltage, V , a higher power factor draws less amount of current and hence low I2R losses in the transmission lines. A purely reactive load where φ → 900 and cos φ → 0 will draw an excessively large amount of current and a power factor correction is required.