Is an IOU Legally Binding?
It can be more difficult to enforce this agreement due to its informality. Outlining all the names, amount of the loan, and obligations will make the IOU enforceable and a binding agreement.
Create a simple IOU form with our template to make your informal loan agreement. Ensure all the details are in place when you create your form.
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Last Update April 25th, 2024
Also Known As
Debt Acknowledgment Form
I Owe You
Informal Loan Agreement
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An IOU is an informal loan agreement between a lender and a borrower. It puts the debt in writing, and the person who borrows your money has a responsibility to pay it back.
An IOU is sometimes referred to as:
Many times this document is used between 2 people with a previous relationship. Even though it is not considered formal, the agreement can be enforceable and used in court.
An I Owe You states the amount of money borrowed and when it needs to be paid back by the borrower.
Using a simple IOU form to complete every type of agreement is not recommendable. It is a much more informal type of loan agreement and shouldn’t be used for formal transactions.
However, an IOU is the best option in certain moments, for example:
Using an IOU or not, depends on the relationship you have with the borrower. This document is often reserved for family members, friends, and coworkers.
If you do not use an IOU, you may have trouble getting your money back. This can cause strain in your relationship with the borrower as well as a legal dispute.
LawDistrict has IOU forms in PDF available to help you write your agreement.
You can create your own IOU document by downloading our free printable IOU template. Afterwards, follow these step-by-step instructions to know exactly what should be in an IOU letter:
Fill in the names of the people borrowing and loaning the money. Then include the amount of money being loaned. Add any interest in the amount that must be returned.
Write the name of the borrower, and add that he or she will pay back the full amount. Include the choices of paying the loan back in partial or full payments. If it is partial, mention the frequency of payments.
Include a declaration that states both parties are bound to the agreement. Write the date the agreement is going to take place.
Write your name and the name of the borrower, and then sign the document. In addition, include the name and signature of any witness, including a notary public.
If you are planning to loan your money to someone who needs it, it is essential that you ensure you will get your money back.
There are different types of agreements and legal documents that can be used for this purpose.
Besides an IOU, a Loan Agreement and a Promissory Note include a promise from a borrower to repay the loan in full.
Review the table below to better understand the 3 documents.
IOU | Promissory Note | Loan Agreement |
---|---|---|
Includes only basic information such as names and loan amount | Ideal for paying over a longer period of time | Includes the right to transfer the debt |
Ideal for agreements between family and friends | Information about any collateral | It can be repaid in installments |
It is the simplest to write | There are Secured and Unsecured Promissory Notes | Includes details about the consequences of defaulting. |
To give you a good idea of how to write the form, we have included a sample of the document below.
Then, use our free IOU template to complete your form.
There are similar documents that may be helpful to you and your finances if you are interested in an IOU form.
These documents include:
Using LawDistrict, learn more about how these financial legal documents can help you along with hundreds of other legal forms.
An IOU is not always simple to understand. That is why we’ve included answers to some of the most common questions about IOUs.
Answering these doubts, we intend to provide you with further information to make the writing process easier.
It can be more difficult to enforce this agreement due to its informality. Outlining all the names, amount of the loan, and obligations will make the IOU enforceable and a binding agreement.
Depending on the state, your IOU may need to be signed by a witness. Even if it is not required, it is a good idea to have it signed by a witness or a notary public.
If the document is signed and states the amount of money that is owed, the borrower will be legally required to pay that amount back.
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