What is the AFR for a family loan?

The AFR depends on term: short-term up to 3 years, mid-term 3 to 9 years, long-term over 9 years. As of June 2026 the annual AFRs are 3.85% short-term, 4.13% mid-term, and 4.87% long-term. The IRS updates them monthly.

Free tool

Family Loan Calculator

Q: Do you have to charge interest on a family loan?

For loans above $10,000 the IRS expects at least the Applicable Federal Rate (AFR). Charge at least the AFR and it's a real loan; charge less and the forgone interest is treated as a gift from lender to borrower.

Q: What happens if you charge below the AFR?

The difference between the AFR and the rate charged is forgone interest, treated as a gift. Under the $19,000 (2026) annual exclusion there's no filing; above it you'll likely file Form 709.

Q: How do you keep a family loan from being treated as a gift?

Use a written promissory note, a real repayment schedule, and interest at or above the AFR. Without them, a loan that's never repaid can be reclassified as a gift.

This free family loan calculator shows the monthly payment, the total interest, the minimum rate the IRS expects you to charge — the Applicable Federal Rate (AFR) — for an intra-family loan, and flags whether your rate creates a gift-tax issue. Enter the amount, term, and rate to see your numbers and a downloadable amortization schedule.

Your loan

Loan amount

Term (years)

Interest rate (% per year)

Minimum IRS rate (AFR) for this term: 4.87% .

What it looks like

Monthly payment—

Total interest—

Total repaid—

Year-by-year breakdown

Principal and interest each year — and if you're below the AFR, the imputed gift and whether it tops the $19,000 annual exclusion.

Year	Payments	Principal	Interest	Ending balance	Imputed gift (vs AFR)	Over $19k?

✓ You're set — your download is starting. Download the spreadsheet

Don't run it on a spreadsheet.

Family Matters drafts the IRS-compliant note, pulls the payments automatically, tracks the balance both of you can see, and prepares the year-end records your CPA needs. Be the first to try it.

Set up my family loan →

How family loans and the AFR work

Do you have to charge interest on a family loan?

For loans above $10,000, the IRS expects you to charge at least the Applicable Federal Rate (AFR) — a minimum rate it publishes every month. Charge at least the AFR and the loan is a real loan. Charge less (including 0%), and the IRS treats the interest you didn't charge as a gift from you to the borrower.

What is the AFR, and which one applies?

The AFR depends on the loan's term: short-term for loans up to 3 years, mid-term for 3 to 9 years, and long-term for over 9 years. As of June 2026 (IRS Rev. Rul. 2026-11), the annual AFRs are 3.85% short-term, 4.13% mid-term, and 4.87% long-term. The IRS updates these monthly — check the current month before you sign.

What happens if you charge below the AFR?

The difference between the AFR and what you actually charge is "forgone interest," and it counts as a gift to the borrower. If your total gifts to that person stay under the annual gift exclusion ($19,000 per recipient in 2026), there's no filing. Above it, you'll likely need to file a Form 709 (you still probably won't owe tax — it just draws down your lifetime exemption).

Loan or gift — how do you keep it a loan?

Three things make it a loan in the eyes of the IRS: a written promissory note, a real repayment schedule, and interest at or above the AFR. Without them, a "loan" that never gets repaid can be reclassified as a gift. That's exactly the paperwork and servicing Family Matters handles for you.

Part of our complete guide to intra-family loans — when they make sense, the rules that keep them a loan, and how to set one up.

This calculator is for general information and isn't tax or legal advice. AFRs change monthly; verify the current rate with the IRS and consult your CPA or attorney before structuring a loan.

Advise families or run a finance site? This calculator is free to embed on your own site.