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Latent variable moderation is crucial for modeling interactions involving unobserved constructs, yet few methods handle categorical moderators. This study evaluates a new factored regression approach that estimates latent-by-categorical interactions. Using Monte Carlo data simulations, we varied sample size, indicator loading size, number of groups, and interaction effect size to compare factored regression with multigroup SEM and manifest-variable regression. Outcomes include bias, mean squared error, interval coverage, and power. Results clarify conditions under which factored regression offers advantages over existing methods. A real data example using the rblimp R package will be developed to demonstrate model implementation and interpretation. This work expands applied researchers’ options for estimating interactions involving latent variables and categorical groupings.