What is an IOU Form?

An IOU Form, abbreviated from the phrase “I Owe You,” is a written acknowledgment of debt to another party. It is an informal document and sometimes it is not a legally binding one, but it offers a simple solution when two parties want to record a transaction without the hassle of complicated paperwork. People that tend to use an IOU are trustworthy and close individuals, typically business partners, friends, or family members.

This form gained a bad reputation from movies as it was mostly depicted as a paper or a bar napkin with words scribbled on it signed by drunken people, who casually made an agreement one night. In reality, this simple document is very powerful as one can use it to enter into an agreement with someone else.

It is also easy to make and is very customizable to fit the needs of both parties and can include anything they agree on. The more specific the IOU the more likely it is enforceable. If you’re loaning or lending a substantial amount to someone, no matter how close you are to the person, this document is important.

How to fill out an IOU?

Before filling out the form, make sure that the information given is correct. Write as legible as possible to avoid errors and the possible need for corrections.

Step 1: Indicate the amount.

Step 2: Put the date when the agreement was made.

Step 3: Enter the name of the Debtor or Borrower, the Creditor or Lender, and the amount of the loan (which is advised to be in written and numeric form).

This can also include the home or business addresses, and the contact details of the parties involved – the lender and the borrower.

Step 4: Payment Information

This requires information pertaining to when the loan will be repaid There is a due date to be stated.

Do note that for this IOU Form, all payments under are applied first to accrued interest and then to the balance of the outstanding principal.
When it comes to the payment information, you can be as specific as you want as it depends on you.

Step 5: Payment Schedule

Write when the successive payment will be made or is due on the given day of each month.

This varies if the loan is being paid off with one lump sum payment without monthly installments or if the borrower will pay back the loan with monthly installments until the loan is paid off.

Step 6: Interest Rate

Provide the interest rate per annum accruing daily from the date of the note and until maturity.

Step 7: Governing Law

Write down the State of which laws will be acknowledged.

Step 8: Signatures of the people involved.

Get the required signatures from the people involved.

An IOU is written evidence of a debt. If signed by the borrower, it is even better evidence. But for an even safer transaction signatures from both the Lender and Borrower is needed.
In the given fillable form, even the signature of a third party such as a witness is required to sign, with a total of four signatures.
In some states, a Notary Public and a Witness are needed to sign off on the IOU as well to be valid. Check with your state to make sure you are aware of the laws.

In this fillable form, a Notary Acknowledgement is also provided. It is recommended that you have your IOU Form be notarized so it can be used in court, in case that will be necessary.

Instructions:

Provide the State and County.
Name of the Notary Public.
Name of the one who signed the foregoing instrument.
Date of the signing.
Signature of the Notary Public.
The expiration date of the commission.

Frequently Asked Questions About an IOU

Is an IOU a legal document?

An IOU is an informal agreement to pay a debt. A company can issue an IOU when it owes money to another company or individual, and the recipient has agreed not to demand payment until a set date in the future. The issuer of an IOU is known as a debtor, while the person who will be paid when the IOU matures is called a creditor.

IOUs are not used in everyday life very often because they require significant trust. The issuer must trust that the creditor won't demand repayment before the due date, and the creditor must trust that the debtor will be able to pay on time.

Whether or not an IOU is legal depends on the circumstances under which it is issued. They are legal if the issuer pledges collateral, guaranteeing that they will repay the funds should they be unable to repay them at maturity. Also, an IOU's legality depends on whether or not the issuer has the ability to repay said funds at maturity. It can also be classified as either negotiable or non-negotiable. A negotiable IOU can be sold to another party, which makes that party responsible for repayment. On the other hand, a non-negotiable IOU must be repaid by the issuer; it cannot be sold and therefore the issuer remains responsible for repayment. It is one type of short-term debt instrument. Other types include commercial paper and certificates of deposit (CDs).

What are the three types of IOUs?

There are three main types of IOUs: promissory notes, mortgage notes, and endorsements.

A promissory note (IOU) is a written agreement to repay money borrowed from someone or an organization with interest on the amount owed. Additionally, this type of legal IOU may require repayment in installments over time. The borrower signs his name at the end of the document along with the lender to indicate that both parties understand and accept the terms of the loan.
A mortgage note (legal IOU) is a promissory note (IOU) in which there are two parties; one party is providing money for property, such as land, and the other party is acquiring property with the money provided by the first party. The borrower signs this loan document before receiving the money. The lender is also obligated to repay the money with interest through monthly payments within a specific timeframe (term). When the time has elapsed and all payments have been made, the lender is entitled to turnover his legal IOU document by recording it in the registry for public access.
An Endorsement (legal IOU) is a written contract between two parties, one of which provides money to the other. The borrower signs his name at the bottom of an endorsement (IOU) and accepts its terms. It is similar to a bill of lading or promissory note (IOU); the only difference is that it applies specifically to credit card transactions.

What is the difference between a bill of sale and an IOU?

An IOU and a bill of sale are two different financial documents. By definition, an IOU is a written promise to repay a debt. A bill of sale, on the other hand, lays out the terms and conditions for transferring ownership of property between two parties. Furthermore, the terms and conditions outlined in a bill of sale must be followed to avoid any financial liabilities.

These documents are used in a variety of industries to facilitate transactions.

How to write a legal IOU document?

To write a legal IOU document, you must have the following information:

Name and address of the debtor — the person or company you owe, called the obligor
Name and address of the creditor — the person or company you're borrowing from
The amount to be owed, including principal and interest if available
Date due for repayment
Your signature, indicating acceptance of the IOU

The debtor or obligor is the person or company you owe money to. The creditor or lender is the person or company that loans you money.

Every legal IOU document must contain dates indicating when payments are due. Many legal IOUs use a calendar year — January 1st to December 31st — for this date. The amount a debtor owes a creditor is called the principal. The legal IOU must state the amount of principal and indicate if there is also interest due. The legal IOU must also indicate the date on which you promise to repay the loan.

You should sign your legal IOU document to indicate that you have accepted it as a valid and binding obligation. If more than one person signs, all of them should sign with a slash if they are borrowers or a plus if they are lenders.

The creditor or lender will hold the legal IOU until it is repaid in full.

What happens when a debtor fails to repay an IOU?

Any debtor who fails to repay a legal IOU according to its terms is said to be in default of the obligation or contract. When this occurs, the creditor has the right to sue the debtor and recover damages.

What is IOU from employees?

An employee may write an IOU for money borrowed. An IOU is a written promise to repay money borrowed. When an employee writes an IOU for money borrowed, the document states that "I owe you" (the person the employee borrowed from) (name of individual or business) (amount owed), and then lists when and how much should be paid back.

Is an IOU a promissory note?

A promissory note is a type of IOU document. It is usually issued by a borrower (someone who requires money) to the lender (the person who provides the funds). The issuer of the note promises that he/she will pay the face value on the maturity date and that he or she will also pay interest on it. A promissory note is used to document loans, especially short-term ones. It is also called a note payable.

A promissory note can be used for borrowing money for several reasons. Some of them are listed below:

Personal Loans — Borrowing or lending money between individuals is usually done with the use of a promissory note instead of an agreement or a contract.
Business Loans — Loan or borrowing money is also done with the use of promissory notes in business transactions. Promissory note samples are very much helpful for businesses when they are looking for financing from other organizations or individuals. Many banks, financial institutions, and private lenders provide funding to the needy ones who have a great business idea. However, promissory notes are used to document these types of transactions between the two parties involved in the lending and borrowing activity.
Credit Sales — If you have ever heard about Company A selling products on credit to Company B, then you must be knowing what a promissory note is. In fact, a promissory note is the most common method of extending credit. This enables Company B to buy products from Company A without paying for them at the time of purchase. In this case, Company A will create a written document that outlines the terms and conditions of making payments and returning goods after purchase. The repayment plan may include an interest rate, a due date for payment, and a late fee if it is not paid by the given time. The document also states that failure to make timely repayment may result in repossession of goods from Company B.
Mortgages — Promissory notes are used when you need money to pay for your home loan. In this case, a lender provides a lump sum of money to the borrower. In return, the borrower agrees to pay back the loan over a certain period of time with interest. A promissory note is used to document this type of transaction as well. Promissory notes for mortgages are also known as mortgage notes. It is because they provide details of the repayment schedule of your home loan. Mortgage lenders usually use a mortgage note calculator to compute the amount of interest you have to pay on your loan.
Over-The-Counter (OTC) — An over-the-counter is a market where securities are bought and sold between two parties without going through a formalized exchange. In this case, a promissory note is used by investors to borrow money from brokers. Promissory notes are basically financial contracts between the two parties involved in the transaction. Therefore, they can be compared to securities as well. For instance, a check is also a type of financial contract that allows you to receive funds from someone else's account.
Entrepreneurship — Promissory notes are also used by entrepreneurs to borrow money from friends, relatives, and business people in order to finance a new business project. In this case, the note states that you will pay back the investors their investment plus interest upon successful completion of your project or in a given time frame when it is profitable.
Credit Sales — A credit sale occurs when Company B makes purchases on credit from Company A . The goods are only paid for when the customer pays the full amount due or in terms of an agreement with Company A. Promissory notes are used to document this type of transactions as well. However, usually, you won't see a sample of a promissory note for credit sales because these types of transactions are made between two companies.
Loans from family and friends — If you have ever borrowed money from your relatives or friends, then you must have some idea about how a promissory note looks like. In this case, the note is used to document the terms and conditions of making repayments on a loan to your friend or family member. For instance, you may have to pay back the loan with interest as agreed upon by both parties.
Bills for services rendered — If you take loans from people who provide you with specific goods and services, then they will usually ask you to sign a promissory note. For instance, if you hire a lawyer to draft your will, then he may ask you to sign a promissory note before he starts working on it. This document basically states that you will pay him according to the terms of an agreement between the two parties.
Credit cards — If you have ever used your credit card to buy something online or at a store, then you know how it works. When you purchase an item on credit, the promissory note is basically used to record all of the required details of making payments for that particular transaction. It states all of the terms and conditions of making repayments according to the agreement between both parties.
Loans from financial institutions — Promissory notes are also used by banks and other financial institutions to make loans to borrowers. These documents usually state the repayment schedule of a loan, the amount of interest payable for that particular period, the total value of the loan given by the lender, and how it will be repaid by the borrower at the end of the loan tenure.
Bonds — Promissory notes are also used to borrow money from investors by issuing bonds. These notes state the repayment schedule of the borrowed funds along with interest rates payable for each period of time. For instance, if you repay $1,000 worth of bond on day 1 after borrowing it for 2 months with 10% interest, then you will have to pay $1,100 on the due date.

What is an IOU in crypto?

IOU in crypto token means that a person owes an amount of cryptocurrency to another person. It is often used in the case of cryptocurrency trading. IOU in crypto is the same as a regular IOU; however, the difference is that the IOU is in a digital form.

What does IOU stand for slang?

IOU basically means "I Owe You". You are basically promising to give someone something or do something for them in the future. It is a promise that you will hold true. The IOU helps everyone since now both of you have an agreement on what you can expect from each other. You might not be able to do something right at this moment, but you feel like giving it back at a later time. Now all you need to do is post an IOU on the forums so everyone knows what you owe and who you owe it to. In order for something to be valid as an IOU, it needs to have these three things:

A specified timeframe of when or where you will either give or do something
What you will give or do — Most people do not like surprises and would rather know what they are getting
To specify whether this IOU is a gift IOU or service IOU — A service IOU is something where you expect to get paid back with some form of currency; whereas a gift IOU does not expect to get paid back at all

What is IOU in banking?

In banking, IOU documents are used to record debt between one party and another. Moreover, these documents may form the basis for credit and settlement systems. Banks may also use an IOU to acknowledge a customer's repayment of a loan.

Does an IOU have to be notarized to be legal?

An IOU does not have to be notarized to be legal. In fact, notarization is NOT required. Now you might say that the person who gave me the IOU as a gift was doing it as a joke and he said to notarize it. However, this isn't true either because even if the note was written as a joke, if somebody accepts it as "payment" then it becomes a valid debt. Moreover, notarization is not required for a debt to be valid, otherwise, all IOUs would have to be notarized.

By law, for an IOU to be legal, all that is required is that it must contain the following:

The amount of money owed
The date when this money is due
The name, age, and address of the debtor
The signature of the debtor

Now if you want to be absolutely safe you should have all four elements. However, even if only three are present it is still considered a valid debt. You can prove this by simply examining any IOU that's floating around in your house. Most likely it'll contain two of the four elements or at least one element. Remember that an IOU is a contract. Contracts are binding legal documents, so you should treat them as such. As long as they have three of these four elements present they are considered valid contracts. It's best to have all four just in case somebody decides to sue you for repayment.

Is IOU good or bad?

An IOU can be beneficial when you need something rather urgently, for instance when you need to get a new device — e.g. laptop — but your old one is about to die on you soon. However, there are also times when you find yourself in possession of an IOU that's not very helpful or even worse — useless.

Whether or not an IOU is beneficial depends on its issuer and on your relationship with that person. Note, however, that IOUs are legally worthless without a proper contract, which makes them not much different from a gift certificate or a written promise to pay you back. There is a reason why some places won't accept them as their legal tender — they're essentially "walking" pieces of paper.

How to terminate an IOU?

If you want, you can provide details about what happens when the borrower does not pay the loan. For instance, the lender gains ownership of the collateral, acceleration of the debt, or the collectionof additional costs.

Where to file an IOU?

Both the Debtor or Borrower and the Creditor or Lender should have copies of the IOU Form, as well as legal help for an extra precautionary measure. Even if your state laws do not require the signature of a notary public on the document to become valid, it’s still recommended to have it notarized as it gives a higher level of protection to both you and the borrower. You should both be with the notary public during the signing of the IOU.

Does an IOU stand up in court?

The IOU serves as written proof of debt and if the borrower signed this, it will serve as evidence in court. As documentary evidence of the debt, an IOU with signatures will sometimes be as good as a promissory note but with a simpler format and wording. This means that you can use this document in court as needed. But it is important to know that a promissory note includes more information such as the steps the borrower needs to take to pay back the loan.

If you have any doubts about the IOU template, consult with a lawyer. A lawyer can explain to you all of the legal details associated with IOUs, no matter how small they are. Also, a lawyer can offer suggestions about any legal actions you may take in case of an issue.

Who needs an IOU Form?

People who loan a certain amount of money to a person and they want their agreement in writing.
People who borrow a certain amount of money from a person and they want the terms of their agreement in writing.
The loan includes relevant payment information like interests which they need to specify.
People who have transacted with the same person in the past and they accept an IOU note.
People who don’t have enough money to pay for an item, so they give the merchant an IOU form for the balance.
People who need to borrow a specific amount of money to make a down payment.

Fillable Form IOU Template