What is the AFR Calculator?
The AFR (Applicable Federal Rate) Calculator is a specialized tool designed to help you calculate loan payments using the IRS minimum interest rates. These rates are required for certain loans between related parties to avoid tax complications.
When to Use the AFR Calculator
Use this calculator for:
- Family Loans: Lending money to family members
- Intra-family Mortgages: Helping family purchase property
- Business Loans: Loans between related businesses
- Estate Planning: Structured loans as part of wealth transfer
- Private Loans: Any loan where IRS compliance is needed
Step-by-Step Guide
1Enter Your Loan Amount
Input the total amount you're lending. The calculator automatically formats numbers with commas for easy reading.
- Minimum: $1,000
- Maximum: $10,000,000
- Use whole numbers (no decimals)
2Select Your Loan Term
Choose how many years the loan will last. This determines which AFR rate category applies:
- Short-term AFR: 3 years or less
- Mid-term AFR: Over 3 years to 9 years
- Long-term AFR: Over 9 years
3Choose Compounding Frequency
Select how often interest compounds. This must match your actual payment schedule:
- Monthly: Most common for regular loans
- Quarterly: Every 3 months
- Semiannual: Twice per year
- Annual: Once per year
4Calculate Your Payment
Click the "Calculate Payment" button. The calculator will automatically:
- Select the correct AFR rate based on your loan term
- Apply the rate for your chosen compounding frequency
- Calculate your payment amount
- Generate a complete amortization schedule
Understanding Your Results
Payment Information
The calculator shows:
- Payment Amount: How much you pay each period
- AFR Rate Used: The specific rate applied to your loan
- Total Interest: Total interest over the loan life
- Total Payments: Sum of all payments you'll make
Visual Charts
Two charts help you understand your loan:
- Payment Comparison: Shows AFR vs. typical bank rates
- Interest Breakdown: Visualizes principal vs. interest
Amortization Schedule
A detailed table showing each payment with:
- Payment number and date
- Principal and interest portions
- Remaining balance after each payment
Practical Examples
Example 1: Family Home Purchase Assistance
You want to lend $200,000 to your child for a home purchase with a 15-year term.
- Loan Amount: $200,000
- Term: 15 years (uses Long-term AFR)
- Compounding: Monthly
- Result: Monthly payments based on current long-term AFR rate
Example 2: Short-term Business Loan
Your business needs to lend $50,000 to a subsidiary for 2 years.
- Loan Amount: $50,000
- Term: 2 years (uses Short-term AFR)
- Compounding: Quarterly
- Result: Quarterly payments based on current short-term AFR rate
Important Considerations
Documentation
Always document your AFR loan with:
- Written loan agreement
- Clear repayment terms
- The AFR rate used and date
- Signatures from all parties
Tax Implications
- Interest received is taxable income to the lender
- Interest paid may be deductible for the borrower (consult a tax professional)
- Below-market loans may trigger gift tax consequences
Rate Selection
- You must use the AFR rate for the month the loan is made
- Once set, the rate typically remains fixed for the loan term
- You can charge more than AFR, but not less
Frequently Asked Questions
Can I use a different interest rate?
Yes! If you want to use a rate other than the current AFR, use our Basic Loan Calculator where you can input any custom interest rate.
What if I need historical AFR rates?
View all historical rates on our Historical AFR Rates page, which includes monthly rates dating back with official IRS documentation links.
How often are AFR rates updated?
The IRS publishes new AFR rates monthly, typically in the last week of the preceding month. Our calculator is updated as soon as the new rates are published.
Can I charge 0% interest on a family loan?
For loans over $10,000, the IRS requires at least the AFR rate. Charging less may result in imputed interest and potential gift tax consequences.