The current AFR
Use the monthly short-, mid- or long-term federal benchmark for the loan’s term and compounding period.
Free US friends and family loan tool
What Interest Rate Should I Charge Friends or Family?
Compare 0%, the current IRS Applicable Federal Rate and a rate you choose. See the repayments, total interest and estimated below-AFR difference before you agree on the loan.
Compare family-loan ratesShort answer
Start with AFR, then choose a rate both people understand
There is no single relationship rate for every loan. For US federal tax purposes, the current AFR is the clearest benchmark to compare first. A higher custom rate may better reflect a long term, inflation or the lender’s opportunity cost, while a lower rate may create imputed-interest considerations.
Choose a fair rate
What should affect the interest you charge?
Affordability
Choose repayments the borrower can realistically make without turning family support into a recurring source of stress.
Loan term
A longer loan ties up the lender’s money for longer and can increase the total interest even at the same annual rate.
Opportunity cost
The parties may decide that a custom rate should recognize inflation or what the lender could otherwise earn.
State rules
AFR is not a state-law maximum. Check whether an applicable interest ceiling or exception affects the arrangement.
Clear written terms
Record the amount, annual rate, schedule, start date and what happens if either person needs the plan to change.
Three useful comparisons
Test 0%, AFR and your proposed rate
The most useful answer often comes from seeing the choices side by side. Compare the payment and total-interest impact of an interest-free loan, the current federal benchmark and the rate the parties are considering.
- 0%Shows the pure repayment plan and highlights below-market context.
- Current AFRShows the federal tax benchmark for the selected fixed term.
- Custom rateShows the real repayment and total-interest effect of the rate you may agree.
People also ask
Interest on loans to friends and family FAQs
What interest rate should I charge a family member?
For a US fixed-term loan, start by checking the current AFR for the loan month, term and compounding period. Then compare affordability, loan length, opportunity cost and any applicable state ceiling before agreeing on the final rate.
What interest should I charge a friend?
The same starting points apply as for a family loan: compare the current AFR, the borrower’s affordable payment and the full cost of the proposed rate. Record the final terms clearly so friendship is not left to fill in the gaps.
Can I charge more than the Applicable Federal Rate?
AFR is a federal tax benchmark, not a universal maximum. A higher rate may be agreed, but state interest-rate rules and the facts of the loan can still matter.
What happens if I charge less than AFR?
The federal below-market-loan rules may treat the difference as imputed or forgone interest. Depending on the arrangement, that can affect taxable interest and gift treatment.
Is interest paid by a family member taxable to the lender?
Interest received is generally income to the lender. The exact reporting treatment depends on the arrangement and the lender’s circumstances.
Should a family-loan interest rate be written down?
Yes. Recording the annual rate, amount, repayment frequency, term and start date gives both people the same plan to follow and makes later misunderstandings less likely.
From rate to repayment plan
Ready to record the agreement?
Set up and track the loan for free in Chipkie once both people are comfortable with the rate, amount and schedule.