AFR Calculator Guide

Learn how to use the AFR calculator for IRS-compliant family loans and private lending

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.

If you need to use a custom interest rate that's not the current month's AFR rate, use our Basic Loan Calculator instead, where you can input any interest rate.

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
The IRS requires you to charge at least the AFR rate on loans above $10,000 to avoid imputed interest and potential gift tax consequences.

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
The compounding frequency affects both the AFR rate used and your payment amount. Monthly compounding typically results in slightly lower rates.

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
This calculator provides general guidance only. Always consult with a tax professional or attorney for specific advice about your situation.

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.

Ready to Calculate Your Loan?

Use our AFR calculator with current IRS rates

Go to AFR Calculator