Yes. Personal loan lenders rarely verify how you use the funds, so you can use the proceeds to pay back a family member just as you would for any other purpose. The cleaner approach is to take the loan, deposit the proceeds into your account, and transfer the money to the family member. Avoid telling the lender the purpose is "to pay back a family loan"; some applications do not have that as a category and the underwriting may be less favorable.
Lender verification. Most personal loan applications ask about loan purpose (debt consolidation, home improvement, medical, vacation, etc.) but do not verify the answer. The application categorization is mainly used by the lender for marketing analytics. Some lenders offer slightly better rates for debt consolidation than for other purposes, so categorize accordingly if there is a fit.
How to structure the transfer. Once the loan funds, transfer the money to the family member through a normal bank transfer or check. Avoid suspicious patterns: do not transfer the entire loan amount within 24 hours of funding (this can trigger fraud-prevention flags), do not move money through multiple intermediary accounts, and keep records of the transfer for tax purposes.
Tax implications. Paying back a personal loan from a family member is not taxable to either party. The original loan from the family member was not income (it was a loan), and the repayment is not income (it was a return of principal). If the family member charged you interest, that interest may be taxable to them at their marginal rate; the IRS publishes Applicable Federal Rates that family loans should at least match to avoid imputed-interest issues.
If the family loan was forgiven. If your family member forgave the loan and you are now paying them back voluntarily, treat the payment as a gift. Gift tax applies only to amounts above $19,000 per recipient per year (2026 limit), and the gift tax is paid by the giver, not the recipient. For most family situations, gift tax is irrelevant.
Why this is sometimes a good idea. Paying back a family member with a bank loan turns a relationship-based obligation into a structured payment plan. The family member gets paid in full immediately. You get a fixed monthly payment, fixed term, and a clear payoff date. Tensions over the loan often dissipate once the money has been returned.
Why this is sometimes a bad idea. If you cannot afford the bank loan payment, you have just converted a flexible family obligation (which can be deferred or restructured informally) into a rigid bank obligation that affects your credit if you default. The bank does not care about your family circumstances; the family member usually does.
Loan terms to look for. Aim for the lowest APR you qualify for, no origination fee if possible, no prepayment penalty (so you can pay down early if your finances improve), and a term that matches your repayment capacity. SoFi, Marcus, and credit unions tend to offer the cleanest terms.
Alternative: structured family loan. If you have not yet borrowed from the family member but expect to, consider documenting it as a formal loan with the IRS-published Applicable Federal Rate as the interest rate. This protects both parties and clarifies the obligation. AFRs are very low (typically 2%-5% depending on term), making this a much cheaper option than a bank loan if your family member can wait for repayment.