It is considered an acknowledgement of a debt, but the sum total may be so negligible that legal collection actions would be counterproductive. An IOU is a written but relatively informal contract between two parties recording a debt and an agreement to repay it. It outlines the basics of the arrangement, but often little else, such as the terms or repayment schedule of the loan.

Is an IOU a Legal Document?

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1. An IOU is a written but relatively informal contract between two parties recording a debt and an agreement to repay it.
2. It’s a financial instrument that contains a written promise to pay a specific sum of money to a specified person at a definite time or on demand.
3. Some authorities feel an IOU isn’t binding at all; it’s merely the acknowledgement that a debt exists.

IOU vs. Promissory Note

Due to their detailed nature, promissory notes are more enforceable in a legal setting compared to IOUs. An IOU is a written, but largely informal, acknowledgement that a debt exists between two parties, and the amount the borrower owes the lender. Signed by the borrower, it often indicates a date for repayment of the debt, but often omits other specifics, like the payment schedule or any interest charged. It can’t be sold or transferred to another party and offers the lender little legal recourse if it is not honored by the borrower.

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Elizabeth joined GOBankingRates in 2022, bringing with her a background in both non-fiction and fiction editorial work. Her experience includes an internship at Penn State University Press during her university years, where she worked on historical non-fiction manuscripts. An IOU is a legal document that can be introduced in a court of law—though whether or not it is binding is open to dispute. Some authorities feel an IOU isn’t binding at all; it’s merely the acknowledgement that a debt exists. Others feel it is binding, though whether it can actually be enforced is a different story.

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Legal Templates LLC is not a lawyer, or a law firm and does not engage in the practice of law. Legal Templates cannot and does not provide legal advice or legal representation. Legaltemplates.net is owned and operated by Resume Technologies Limited, London with offices in London United Kingdom. That little written reminder – even if it seems silly – I have had friends borrow money from me and I have borrowed money from friends and I am always the only one who remembers! (And it’s usually when I borrow money from them, so it’s not like they’re trying to cheat me). I’ll go to pay them back and they just stare at me because they don’t remember that I borrowed the money in the first place.

The first step is noting the basic information of the parties involved and the loan amount. Record the lender’s and borrower’s names and the title loan amount before applying interest. She has been a licensed attorney since 2011 and has years of legal experience advising and representing clients on a wide variety of business and other legal matters.

In short, if a person is not sure whether a transaction is a loan or a gift, it may be best to ask if an informal IOU is necessary. The lender may not even bother to collect on the debt, but at least both parties have recognized it and have some written best cryptocurrency wallets of 2021 record of the transaction. Not only do clear expectations protect the lender’s interests, but they can give the borrower a moment to seriously reflect on whether they can take on the terms of the note. Failing to repay a loan can sometimes do more damage to a relationship than clarifying the contract.

An IOU typically isn’t held to a high standard concerning the repayment terms of the debt when compared to other types of loans. Technically, an IOU can simply show that a debt exists and not include any details about the due date, interest everfx review and rating 2020 rate, or payment installments. GOBankingRates’ editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services – our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.