What is the Applicable Federal Rate (AFR)?

A set of minimum interest rates the IRS publishes monthly. On a family loan over $10,000, charging at least the AFR keeps the IRS from treating the loan as a gift.

Which AFR applies to my family loan?

Short-term for loans up to 3 years, mid-term for over 3 to 9 years, and long-term for over 9 years. As of June 2026 the annual AFRs are 3.85%, 4.13%, and 4.87%.

What happens if I charge below the AFR?

The gap between the AFR and your rate is forgone interest, treated as a gift to the borrower each year. It's usually under the annual exclusion, but can exceed it on a large loan.

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Current Applicable Federal Rates (AFR)

The Applicable Federal Rate (AFR) is the minimum interest the IRS expects on a family loan over $10,000; for June 2026 the annual rates are 3.85% short-term (≤3 years), 4.13% mid-term (3–9 years), and 4.87% long-term (over 9 years). Charge at least the AFR and it's a genuine loan; charge less, and the forgone interest is treated as a gift. Here are the current rates and which one applies to your loan.

Short-term

3.85%

Loans up to 3 years

Mid-term

4.13%

Loans over 3 to 9 years

Long-term

4.87%

Loans over 9 years

Annual compounding, June 2026 (IRS Rev. Rul. 2026-11). The IRS sets new AFRs every month — confirm the current month before you sign a note.

Your loan term (years)

Build the loan around the right rate.

The Family Loan Calculator uses the correct AFR for your term, shows the payment and total interest, and flags any gift-tax issue. Family Matters then drafts the note and services it.

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How the AFR works

What is the Applicable Federal Rate?

The AFR is a set of minimum interest rates the IRS publishes monthly. For a loan between family members above $10,000, charging at least the AFR keeps the IRS from treating the loan as a disguised gift. It's the floor, not a required rate — you can charge more.

Which AFR applies to my loan?

It depends on the term: short-term for loans up to 3 years, mid-term for over 3 and up to 9 years, and long-term for over 9 years. Use the term of your note, not the borrower's age or anything else.

What if I charge less than the AFR?

The gap between the AFR and your rate is "forgone interest," treated as a gift to the borrower each year. Usually it's well under the $19,000 annual exclusion, so no filing — but on a large loan it can exceed it. The imputed-interest calculator shows the gift amount.

General information, not tax or legal advice. AFRs change monthly; always confirm the current figure with the IRS before signing a note.