Free US family loan tool

Minimum Interest Rate for a Family Loan

For a US fixed-term family loan, the usual federal tax starting point is the IRS Applicable Federal Rate for the month, loan term and compounding period. Find the current benchmark and model the repayments below.

Find the minimum rate

Answer first

What is the minimum interest rate I should charge on a family loan?

Start with the IRS Applicable Federal Rate (AFR) in effect when the loan is made. The relevant rate generally depends on whether the term is short, mid or long and on the compounding period. AFR is a federal tax benchmark; state interest-rate ceilings are a separate question.

Short term3 years or less

Mid termOver 3 to 9 years

Long termOver 9 years

What is the minimum interest rate for a family loan? In the US the IRS sets one — the applicable federal rate, republished every month — and charging less can create imputed interest. In Australia and the UK there is no minimum at all, though a 0% loan still has consequences worth knowing. Check yours, then create a signed loan agreement with Chipkie.

How to use it

Find a family-loan rate in three steps

1
Enter the loan details
Add the amount, loan term, repayment frequency and first payment date.
2
Review the current AFR
The calculator identifies the relevant term band and shows the current federal benchmark supplied by Chipkie’s live calculator data.
3
Compare the full plan
Review repayments, total interest and payoff timing before the lender and borrower agree on a rate.

Why it matters

Charging less than AFR can still create interest for tax purposes

Under the federal below-market-loan rules, the difference between the required AFR interest and the interest actually charged can be treated as forgone or imputed interest. That can affect the lender’s taxable interest and may also have gift-tax consequences.

The IRS publishes AFRs every month, so use the rate for the actual month and terms of the loan rather than copying an old percentage.

Minimum family loan interest FAQs

What is the IRS minimum interest rate for a family loan?

The usual federal tax benchmark is the Applicable Federal Rate in effect for the month the loan is made, selected for the loan term and compounding period. It is not one permanent percentage.

Can I charge 0% interest on a family loan?

The parties can agree to 0%, but a below-market loan can still create imputed-interest and gift-tax considerations. Compare the 0% result with the current AFR before deciding.

Which AFR term applies to my loan?

Short-term AFR generally covers three years or less, mid-term covers more than three through nine years, and long-term covers more than nine years.

Does the $10,000 exception apply to a fixed-term family loan?

IRS Publication 550 states that the $10,000 exception does not apply to term loans. A fixed repayment term should therefore not be assumed exempt solely because the balance is $10,000 or less.

Is AFR the maximum legal rate I can charge?

No. AFR is a federal tax benchmark. State interest-rate and usury rules are separate and can depend on the state, loan amount, purpose, security and lender.

Does using AFR guarantee the loan is compliant?

No single rate settles every federal, state, tax or documentation question. AFR is a useful starting point, while the facts of the arrangement may require professional advice.

Keep both people on the same page

Found a rate that works?

Set up and track the family loan for free in Chipkie, with the amount, interest rate and repayment plan recorded in one shared place.

Create a loan