About the Family Loan Calculator
This family loan calculator helps you structure a loan between relatives — a parent lending a child a house deposit, grandparents funding a business, or siblings helping each other out. Enter the amount, the rate you plan to charge, the term and the applicable federal rate (AFR) to get the payment, the full repayment schedule and the total interest the lender will receive.
In the US, the IRS expects loans between family members above $10,000 to charge at least the AFR it publishes each month (short-term for up to 3 years, mid-term for over 3 and up to 9 years, long-term above 9 years). The default is the October 2026 long-term AFR for monthly compounding, 5.10% (Rev. Rul. 2026-19), which matches the default 10-year monthly-payment loan; the October 2026 mid-term rate is 4.52% monthly (4.61% annual) and the short-term rate 4.17% monthly. If you charge less, the difference can be treated as a gift and as imputed interest income to the lender. The calculator estimates that gift element for a term loan and compares it with the 2026 annual gift tax exclusion of $19,000 per recipient.
Look up the AFR for the month you sign the note on the IRS website and enter the rate from the column that matches how often payments are made (monthly, quarterly or annual compounding). The results are an estimate for planning; a written promissory note, a real repayment schedule and advice from a tax professional are what make a family loan hold up.
With the default inputs, the payment per period is $1,065.55. Change any value above to recalculate instantly.
How to use the family loan calculator
- 1Enter the amount you plan to lend.
- 2Look up the current IRS applicable federal rate for your term and enter it.
- 3Enter the rate you intend to charge — at least the AFR to avoid gift and imputed-interest issues.
- 4Choose the term and how often the borrower will pay.
- 5Use the yearly schedule as the basis for a written promissory note.
Formula and method
The payment is the standard level-payment amortization formula, using the rate you charge divided by the number of payments per year (i) and the total number of payments (n). Each payment covers that period’s interest first and the rest reduces the balance.
For a below-market term loan, IRC §7872 treats the lender as making a gift equal to the loan amount minus the present value of all the payments, discounted at the AFR (a per period). If you charge the AFR or more, the present value equals the loan and there is no gift. The forgone interest figure compares interest at the AFR with the interest you actually charge on the same balance during the first year. Section 7872 discounts at the AFR compounded semiannually. The IRS also publishes each AFR in monthly, quarterly and annual equivalents; if you enter the column that matches your payment frequency, discounting at that rate per period gives the same present value.
- P
- Loan amount
- i
- Rate charged per period (annual rate ÷ payments per year)
- a
- AFR per period
- n
- Number of payments (years × payments per year)
Worked examples
$100,000 over 10 years at the October 2026 long-term AFR
A 10-year loan is long-term (over 9 years), and the October 2026 long-term AFR for monthly compounding is 5.10%. Charging exactly that on $100,000 gives a monthly payment of $1,065.55 and $27,866 of total interest to the lender. Because the rate matches the AFR there is no imputed gift.
$200,000 at 1% when the AFR is 5.10%, 15 years
At 1% the payment is $1,196.99 a month versus $1,592.03 at the 5.10% AFR. Discounting the 180 payments at 5.10% gives a present value of about $150,373, so roughly $49,627 is treated as a gift — above the $19,000 annual exclusion.
$30,000 car loan to a child, 5 years, annual payments at the mid-term AFR
A 5-year loan is mid-term; with one payment a year, the matching October 2026 mid-term AFR (annual compounding) is 4.61%. The borrower pays $6,854.71 each year for five years, and the parent receives about $4,274 of interest in total.
Frequently asked questions
What interest rate should I charge on a family loan?+
To avoid gift and imputed-interest issues, charge at least the IRS applicable federal rate for the month the loan is made: short-term for loans up to 3 years, mid-term for over 3 and up to 9 years, and long-term for longer loans.
What happens if I lend to family at 0% interest?+
For loans over $10,000 the IRS can treat the forgone interest as a gift from you and as interest income you must report. On a term loan, the gift is the loan amount minus the present value of the payments at the AFR.
Is there a de minimis exception for family loans?+
Yes. Gift loans between individuals of $10,000 or less are generally exempt, as long as the money is not used to buy income-producing assets. For gift loans up to $100,000, the interest imputed for income tax purposes is capped at the borrower’s net investment income, and is treated as zero if that income is $1,000 or less.
What is the annual gift tax exclusion for 2026?+
The annual gift tax exclusion is $19,000 per recipient for 2026, the same as 2025. Gifts above that require Form 709 but usually only reduce your lifetime exemption rather than creating tax due.
Does a family loan need a written agreement?+
A signed promissory note stating the amount, rate, term and repayment schedule — and actual payments that follow it — helps show the IRS it is a genuine loan rather than a gift. Securing a home loan with a recorded mortgage can also let the borrower deduct interest.
Tax results are estimates based on published rules and simplified assumptions. They are not tax advice — check official guidance or a tax professional for your situation.