How to lend money to family or friends, in writing

Published 26 September 2026 · Business deals, money and releases

Decide first whether it is a loan or a gift. If it is a loan, write down the amount, the repayment plan and what happens if a payment is missed, and both sign it. That one page protects the money and the relationship.

Loan or gift?

Many family loans go wrong because the two people remember the deal differently. Ask yourself honestly whether you expect the money back, and whether you could afford to lose it. If you would not chase repayment, it may be kinder to call it a gift from the start. If you do expect it back, say so plainly and put it in writing.

Agree the terms

• Amount and the date you hand it over.
• Interest: none, or a rate. Even a low rate makes it clear this is a loan, not a gift.
• Repayments: one payment by a date, or instalments. A loan repayment calculator shows the instalment and every payment date.
• How payments are made. Bank transfers leave a record; cash does not.
• Early repayment, which should normally be allowed without penalty.
• What happens if a payment is missed: a grace period, a reminder, and when the whole balance becomes due.
• What happens if something changes, such as the borrower losing their job, or either of you dying before it is repaid.

Interest and tax

Tax rules on personal loans differ between countries, so check the rules where you live before lending a large amount.

• In the US, the IRS publishes minimum interest rates each month, called the applicable federal rates. If you lend more than $10,000 to a family member at less than that rate, the IRS can treat the missing interest as income to you and as a gift to the borrower, with some exceptions. Loans of $10,000 or less between individuals are generally exempt, unless the money is used to buy income-producing assets.
• Interest you receive is usually taxable income for the lender in most countries.
• If you later forgive the loan, the amount forgiven may count as a gift for tax purposes.
• Maximum rates. Many places cap the interest rate a lender can charge. Keep family loans well below any such cap.

Promissory note or loan agreement?

Keep it friendly

1. Only lend what you could afford to lose.
2. Treat it like a real loan: sign the document, keep copies and keep a list of every payment received.
3. Talk early if a payment is missed. A changed payment plan, agreed in writing, is better than silence.
4. Tell other family members if it matters for fairness later, for example when a parent lends to one child but not another.

Free templates

For a simple loan, use the free promissory note template. For a larger loan, or one with a late fee, collateral or a guarantor, use the loan agreement template. If a payment is missed, the payment reminder letter keeps the tone friendly.

General information, not legal, tax or financial advice. Tax rules on loans between individuals change and differ by country; check with a tax adviser before lending a large amount.

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