Family loan agreement template
Run the checklist, price the loan against the IRS Applicable Federal Rate, then generate a plain-English agreement you can print, copy or download.
Most family loans fail for the same reason: nobody wrote anything down. This page does it in three steps. Decide whether this should be a loan at all, work out a payment both of you can live with, then put the terms on paper.
If the checklist says to gift instead of lend, that is usually the kinder answer. For the reasoning behind each step, read our rules on lending money to family.
Should I lend?
Nine questions, answered honestly. The checklist scores your capacity to absorb a loss, the realistic odds of repayment, whether the loan will be structured, and what it could do to the relationship.
0 of 9 answered
Answer all nine questions to see a recommendation.
A thinking aid, not financial or legal advice. The scoring is our editorial judgment, not a formula from any regulator.
Family loan calculator
Level payments that fully repay the loan by the end of the term. The terms you enter here carry into the agreement generator below.
60 payments. The final payment absorbs rounding to the cent.
Compare with the Applicable Federal Rate
4.56% compounded semiannually (4.61% annual) for a mid-term (over 3, up to 9 years) loan made in October 2026. Rev. Rul. 2026-19.
Amortization schedule
| # | Date | Payment | Interest | Principal | Balance |
|---|---|---|---|---|---|
| 1 | — | $375.14 | $79.17 | $295.97 | $19,704.03 |
| 2 | — | $375.14 | $78.00 | $297.14 | $19,406.89 |
| 3 | — | $375.14 | $76.82 | $298.32 | $19,108.57 |
| 4 | — | $375.14 | $75.64 | $299.50 | $18,809.07 |
| 5 | — | $375.14 | $74.45 | $300.69 | $18,508.38 |
| 6 | — | $375.14 | $73.26 | $301.88 | $18,206.50 |
| 7 | — | $375.14 | $72.07 | $303.07 | $17,903.43 |
| 8 | — | $375.14 | $70.87 | $304.27 | $17,599.16 |
| 9 | — | $375.14 | $69.66 | $305.48 | $17,293.68 |
| 10 | — | $375.14 | $68.45 | $306.69 | $16,986.99 |
| 11 | — | $375.14 | $67.24 | $307.90 | $16,679.09 |
| 12 | — | $375.14 | $66.02 | $309.12 | $16,369.97 |
Family loan agreement generator
Fill in the parties and terms. The agreement updates as you type, using the amount, rate, term and schedule from the calculator above. Nothing you type leaves your browser.
The parties
Terms
Amount $20,000.00 · 4.75% · 60 monthly payments of $375.14. Change in the calculator.
Family Loan Agreement
Promissory note and repayment terms
This Family Loan Agreement (the "Agreement") is made on [agreement date] between [Lender full name], of [Lender address] (the "Lender"), and [Borrower full name], of [Borrower address] (the "Borrower").
1. The loan
The Lender agrees to lend the Borrower $20,000.00 (the "Loan"), to be paid to the Borrower on or about [loan date]. The Borrower promises to repay the Loan, with interest, as set out below.
2. Interest
The unpaid balance of the Loan accrues interest at 4.75% per year, compounded monthly, from the date the Loan is paid to the Borrower until it is repaid in full.
3. Repayment schedule
The Borrower will repay the Loan in 60 monthly payments of $375.14, beginning on [first payment date] and ending on [final payment date]. The final payment will be $375.03 to account for rounding. Total repayments will be $22,508.29, of which $2,508.29 is interest.
Payments will be made by bank transfer to an account the Lender designates in writing. Each payment is applied first to accrued interest and then to principal.
4. Prepayment
The Borrower may prepay all or part of the Loan at any time without penalty. Prepayments reduce the principal and do not change the amount of later scheduled payments unless the parties agree otherwise in writing.
5. Late payments
If any payment is more than 10 days late, the Borrower will pay a one-time late fee of $25.00 for that payment.
6. Default
The Borrower is in default if 2 consecutive scheduled payments are missed, or if the Borrower becomes insolvent or files for bankruptcy. If a default is not cured within 30 days after the Lender gives written notice, the Lender may declare the entire unpaid balance and accrued interest immediately due.
7. Security
The Loan is unsecured.
8. General terms
Any change to this Agreement, including forgiveness of any part of the Loan, must be in writing and signed by both parties.
If any part of this Agreement is found unenforceable, the rest remains in effect. This Agreement is the entire agreement between the parties about the Loan.
This Agreement is governed by the laws of the State of New York.
Signatures
Date: ____________
Date: ____________
Date: ____________
This document was generated from a free template at briandoylewealth.com. It is not legal advice. Have it reviewed by an attorney licensed in your state before signing.
How to use this tool
- Answer the nine checklist questions. You get one of three recommendations: lend in writing, give a gift instead, or decline. The bars show which area pulled the score down.
- Set the terms in the calculator. Enter the amount, rate, term, payment frequency and loan date. You see the payment, total interest and every scheduled payment. If your rate is below the AFR for the term, a warning explains which IRS rules may apply.
- Generate the agreement. Add both names and addresses, the governing state, a late fee, prepayment terms and any collateral. Then print or save it as a PDF, copy the text, or download it as .txt or .doc to edit in Word or Google Docs.
- Sign it, keep a copy each, and keep records. Record every payment, for example as notes on the bank transfers.
How the numbers work
The calculator uses the standard level-payment formula: payment = P × r ÷ (1 − (1 + r)−n), where P is the loan amount, r is the annual rate divided by the number of payments per year, and n is the number of payments.
Each payment covers that period’s interest first and the rest reduces the balance. Payments are rounded to the cent, and the final payment is adjusted so the balance ends at exactly zero.
To compare with the AFR, your rate is converted to its semiannually compounded equivalent, because IRC §7872(f)(2) measures a term loan against the AFR “compounded semiannually.” The rates shown are fromRev. Rul. 2026-19 for loans made in October 2026. If your loan is made in a different month, enter that month’s rate from the IRS AFR index.
Questions people ask
Is a family loan agreement legally binding?
A written agreement signed by both people is far easier to enforce than a verbal promise, but whether a particular agreement is binding depends on the contract law of your state. Treat this template as a starting point and have an attorney licensed in your state review it before you sign.
What interest rate should I charge a family member?
For federal tax purposes, the benchmark is the Applicable Federal Rate (AFR) the IRS publishes each month. A loan of 3 years or less uses the short-term rate, over 3 and up to 9 years the mid-term rate, and over 9 years the long-term rate (IRC §1274(d)).
For loans made in October 2026, Rev. Rul. 2026-19 sets them at 4.25%, 4.61% and 5.22% with annual compounding (4.21%, 4.56% and 5.15% semiannually).
For a term loan, §7872 compares your rate with the AFR in effect on the day the loan is made, compounded semiannually.
Can I lend money to family interest-free?
You can, but under IRC §7872 an interest-free or below-AFR loan can be treated as if you received the forgone interest as income and then gave it to the borrower as a gift.
Two exceptions help small loans. First, the rule does not apply on any day the total outstanding between the two of you is $10,000 or less, unless the money is used to buy or carry income-producing assets.
Second, where total loans are $100,000 or less, the interest you are treated as receiving is capped at the borrower’s net investment income (treated as zero if $1,000 or less), unless avoiding tax is a principal purpose.
Does a family loan agreement need to be notarized?
The template includes an optional notary block. Whether you need one depends on your state and on what you will do with the document; recording it with a county office, for example, can require a notarized signature. A local attorney can tell you in one conversation.
What happens if I later forgive the loan?
The IRS Form 709 instructions list forgiving a debt among the transfers the gift tax can apply to. The forgiven amount can count as a gift in the year you forgive it, so forgiving more than the annual exclusion ($19,000 per person in 2026) in one year generally means filing Form 709, even if no tax is due because of the lifetime exemption.
Sources
- Rev. Rul. 2026-19, Applicable Federal Rates for October 2026 (Table 1), Internal Revenue Service.
- Applicable Federal Rates (AFRs) rulings index, IRS.
- 26 U.S.C. §7872, treatment of loans with below-market interest rates, including the $10,000 and $100,000 rules in subsections (c)(2) and (d)(1).
- 26 U.S.C. §1274(d), short-, mid- and long-term AFR periods.
- Instructions for Form 709, IRS (forgiving a debt and below-market loans as gifts; annual exclusion).
Figures last verified 13 October 2026