How to Write an IOU

wikiHow is a “wiki,” similar to Wikipedia, which means that many of our articles are co-written by multiple authors. To create this article, 17 people, some anonymous, worked to edit and improve it over time.

wikiHow marks an article as reader-approved once it receives enough positive feedback. In this case, 89% of readers who voted found the article helpful, earning it our reader-approved status.

This article has been viewed 111,183 times.

An IOU is normally written when someone lends money to another person and wants that money back by a specific date. An IOU may also be used when a service or product is provided and an agreement is made that it will be paid for at a later date.

Writing an IOU

Include the date and the amount being borrowed, or the amount agreed on for the service or product. [1] X Research source How much did you loan out?

Include a due date for return of the funds. When do you expect the borrower to pay you back? If multiple payments will be made, agree on specific dates for the payments.

• If you're giving away money without interest, you're losing money. You're losing purchasing power (the ability to buy and invest with the money you're lending) and inflation is outstripping your money.
• If you charge someone interest, the borrower may be more likely to pay you back quicker than had you not. Think about it: Interest lasts as long as the life of the loan, so if the borrower holds on to the money longer, they'll end up paying more interest.
• Don't charge more than 15% or 20%. In fact, interest rates above 15% or 20% might not even be allowed under predatory lending laws. [2] X Research source So keep the interest rate at something manageable and both parties will be happy.

Make sure the other party signs the document. Have them put down a signature along with a legal name.

If possible, have a witness (optional). [3] X Research source Although a witness does not make or break the IOU, it's helpful if you ever need to go to court. A witness might be able to prove a binding verbal contract took place.

Knowing the Legal Implications

A legally-binding IOU can help you if you ever get audited by the IRS. [4] X Research source It's therefore important that you make sure you have formatted the IOU as specified up top, especially if you're lending a significant amount of money.

• If you're lending a larger amount than you're comfortable with, take the time to make a promissory note. A promissory note will make it easier than an IOU to recoup any money you lent out in court.
• In order to establish a promissory note, you should have it notarized. (Other than that, it takes basically the same form as an IOU.) Notarizing a document just means signing it in the presence of a state-sponsored witness and stamping it with a seal of approval.

talk to a lawyer." width="460" height="345" />

If in doubt about any aspect of an IOU, talk to a lawyer. A lawyer will be able to explain all the small legal details associated with an IOU, and should be able to offer suggestions about possible legal recourse you can take if you become unable to recoup the principal.

Expert Q&A

You Might Also Like

Best Online Casinos USA in 2024

14 Effective Ways to Kill Cabbage Worms and Cabbage Loopers

1. ↑http://consumer.findlaw.com/credit-banking-finance/use-promissory-notes-when-lending-to-family-and-friends.html
2. ↑http://blogs.findlaw.com/law_and_life/2013/04/legal-how-to-writing-an-iou-or-loan-note.html
3. ↑http://www.howtodothings.com/finance-real-estate/what-is-an-iou
4. ↑http://consumer.findlaw.com/credit-banking-finance/use-promissory-notes-when-lending-to-family-and-friends.html
5. ↑http://www.investopedia.com/articles/bonds/07/promissory_note.asp

About this article

wikiHow is a “wiki,” similar to Wikipedia, which means that many of our articles are co-written by multiple authors. To create this article, 17 people, some anonymous, worked to edit and improve it over time. This article has been viewed 111,183 times.

Writing an IOU is a straight-forward way to make sure everyone’s on the same page with a loan. At the top of the page, write “IOU” with the amount borrowed and the date. Then, write out a sentence including the borrower’s name, how much they borrowed, the lender’s full name, and the date the loan should be paid back by. For example, you could write, “John Smith promises to pay $3,500 back to Harry Truman by January 2nd, 2025.” In the next sentence, write out how much interest will accrue until the loan is paid off. Have both the lender and the borrower sign the document, then have a witness sign as well to make it official. To learn the difference between an IOU and a promissory note, read on!

Reader Success Stories

Did this article help you?

About this article

"It was very good to know that a promissory note holds more weight in court than an IOU because it has been notarized. Thanks so much!" . " more