The borrower would want to compensate the family member for lending the money. This interest rate could be a fair rate that is lower than what the traditional banks charge and higher than the Applicable Federal Rate (AFR). A good rate would be “AFR plus 1/2(Bank Rate minus AFR).” Propose this fair interest rate, and see if it works for the family member who may be happy to see their money getting this type of return instead of the money sitting in a savings account.
AFR have 3 different type of rates:
- Short-term AFR rates (T-bills with maturities of three years or less)
- Mid-term AFR rates (T-bills with maturities of more than three and up to nine years)
- Long-term AFR rates (T-bills with maturities of more than nine years)
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