Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Minimum-Interest Rules

What it is:

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

How it works (Example):

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 it Matters:

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