Minimum-Interest Rules

Written By
Paul Tracy
Updated November 4, 2020

What are Minimum-Interest Rules?

Minimum-interest rules are federal regulations requiring that all loans bear interest.

How Do Minimum-Interest Rules Work?

Many companies and individuals make loans. These loans can occur in any amount and carry a range of repayment terms. Minimum-interest rules apply mandatory interest rates to loans regardless of the relationship between the lender and the borrower. In other words, even if parents loan their son $10,000 to avoid him having to pay interest to a bank, minimum-interest rules unequivocally stipulate that the parents must charge a minimum interest rate on the $10,000 loan. Authorities use a set of metrics to assign an appropriate minimum interest rate to a given loan.

Why Do Minimum-Interest Rules Matter?

The function of minimum-interest rules is to curtail inordinate levels of financial gift giving between relatives.

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