What is an intra-family loan?
An intra-family loan is one family member lending money to another, with a written agreement to pay it back. People use them to help a child with a down payment, consolidate a relative's high-interest debt, fund a business, or bridge a gap. No bank, and no handing over the cash as a gift.
The difference between a real loan and an accidental gift comes down to structure. Done with a note, a schedule, and a fair interest rate, it's a loan the IRS respects. Done on a handshake, a "loan" that's never repaid can be reclassified as a gift - with the tax paperwork that follows.
When a family loan beats the alternatives
A family loan sits between a bank loan and an outright gift, and it often beats both:
- Versus a bank: the rate can be far lower, approval isn't an issue, and the interest stays in the family instead of going to a lender.
- Versus a gift: a loan gets repaid, so it doesn't draw down your lifetime gift-tax exemption, and it sets a clear expectation, which tends to protect the relationship. If you decide a gift is the better fit, the family loan vs. gift comparison walks through the trade-off.
The three rules that keep it a loan
For the IRS to treat the money as a loan rather than a gift, three things need to be true:
- A written promissory note - the amount, the parties, and the terms in writing.
- A real repayment schedule - actual payments that actually happen.
- Interest at or above the AFR - the Applicable Federal Rate, a minimum rate the IRS publishes monthly. Charge at least the AFR and the loan is genuine; charge less, and the interest you didn't charge is treated as a gift.
You don't have to guess at any of this. The Family Loan Calculator shows the payment, the total interest, the right AFR for your term, and flags any gift-tax issue from a below-market rate - and it'll email you the full amortization schedule.
Loan, or gift?
Sometimes the answer isn't a loan at all. If you don't expect the money back, a documented gift is cleaner. Below the annual exclusion ($19,000 per recipient in 2026), it needs no filing at all. Three things decide it: whether you expect the money back, what it does to your estate, and what keeps the relationship healthiest. The loan-vs-gift guide covers the tax difference in full.
Larger and secured loans
Bigger loans - a home down payment, a property purchase - are often secured by the asset, with a mortgage or lien recorded so both sides are protected. Secured family loans add legal steps (recording, title, insurance, property-tax tracking). The rules stay the same: a note, a schedule, and a fair rate.
Using a loan to help a relative out of debt
Debt rescue is one of the most common reasons families lend: a relative owes thousands on high-interest credit cards, and you can help. Paying it off outright can trip the gift tax and rarely fixes the habit behind it. Consolidating it into one documented family loan - with conditions that make the help stick - usually works far better. The debt-rescue guide covers how.
Free family-loan tools & guides
Calculators and step-by-step guides for setting one up.
Common questions about family loans
Is an intra-family loan legal?
Yes. Lending money to a family member is legal. To be treated as a loan rather than a gift for tax purposes, it needs a written note, a repayment schedule, and interest at or above the IRS Applicable Federal Rate.
What's the smallest loan that needs interest?
Loans of $10,000 or less are generally exempt from the imputed-interest rules, so a small no-interest loan creates no gift-tax issue. Above $10,000, charge at least the AFR.
Do I pay tax on the interest I receive?
Yes. Interest you collect on a family loan is taxable income, reported on your return. That's the trade-off for charging interest, and the borrower still usually pays far less than at a bank.
This guide is general information, not tax, legal, or financial advice. AFR and gift rules change; verify current figures with the IRS and consult your CPA or attorney before structuring a loan.
Set up the loan - don't run it on a spreadsheet.
Family Matters reads the terms from your signed agreement, sets the schedule at the right rate, logs every payment, and keeps the records both sides can see. Try it free for 45 days.
Set up my family loan →