Intra-family loans: lending money within the family, done right

What is an intra-family loan?

An intra-family loan is exactly what it sounds like: one family member lends 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 — without going to a bank and without simply 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 two other options — a bank loan and an outright gift — and 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 clearer expectation that 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:

1. A written promissory note — the amount, the parties, and the terms in writing.
2. A real repayment schedule — actual payments that actually happen.
3. 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.

Loan, or gift?

Sometimes the right move isn't a loan at all. If you never really expect repayment, a documented gift may be cleaner — and below the annual exclusion ($19,000 per recipient in 2026), it needs no filing at all. The deciding factors are whether you expect the money back, how it affects 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), but the core principle is the same: a note, a schedule, and a fair rate. The structure scales; the rules don't change.

Using a loan to help a relative out of debt

One of the most common reasons families lend is debt rescue: a relative is drowning in high-interest credit-card debt, and you have the means to help. Paying it off outright can trip the gift tax and rarely fixes the underlying behavior. Consolidating it into one documented family loan — with conditions that make the help stick — usually works far better. The debt-rescue guide covers how.

Common questions about family loans

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.