what is the applicable federal rate afr 
the applicable federal rate afr is the minimum interest rate that the internal revenue service irs allows for private loans each month the irs publishes a set of interest rates that the agency considers the minimum market rate for loans 1 any interest rate that is less than the afr would have tax implications the irs publishes these rates in accordance with section 1274 d of the internal revenue code 2understanding the applicable federal rate afr the afr is used by the irs as a point of comparison versus the interest on loans between related parties such as family members 3 if you were giving a loan to a family member you would need to be sure that the interest rate charged is equal to or higher than the minimum applicable federal rate the irs publishes three afrs short term mid term and long term short term afr rates are determined from the one month average of the market yields from marketable obligations such as u s government treasury securities with maturities of three years or less mid term afr rates are from obligations of maturities of more than three and up to nine years long term afr rates are from bonds with maturities of more than nine years 4in addition to the three basic rates the rulings in which the afrs are published contain several other rates that vary according to compounding period annually semi annually quarterly monthly and various other criteria and situations example of how to use the afras of may 2023 the irs stated that the annual short term afr was 4 30 the mid term afr was 3 57 and the long term afr was 3 72 please bear in mind that these afr rates are subject to change by the irs 5