What should be included in an IOU agreement?

If you want more than just a handshake to define the terms of the loan, you'll want to make a written IOU agreement that at least includes the names of the people involved, the loan amount, signatures and the date. But unless the loan is small, you'll likely want to include more such as: Contact information Names, addresses and phone numbers for the lender and borrower. Payment information The amount of the minimum payment, payment due dates, late dates, late fees and interest rates. What is allowed as acceptable payment such as cash, bank deposit, online payment or other. Terms of early pay-off if needed. Termination details What happens if the loan is not repaid according to the agreement. It may include taking possession of collateral, acceleration of debt (full balance due in full) and collection costs.

Does an IOU contract need witnesses or to be notarized?

Not all states require other witnesses to sign the contract for it to be enforceable, but if the loan is large it is recommended. It's simple to find notary services in your area and often your bank or credit union has one on staff. It may be free or low-priced depending on the services you use.

Why do I need a formal IOU Agreement?

Some may worry that formal paperwork might put a strain on good relationships, such as family members or good friends loaning money. However, many more relationships have been damaged by someone not paying back a loan than someone asking for a written agreement. It is in everyone's best interest to make the IOU contract. The only time a lender does not need an agreement is if they are 100 percent willing to let the money or property go whether they get paid or not. One of the biggest negative sides to personal loans not being repaid is the strain it puts on the relationship and even other related parties. Friendships can dissolve and family gossip can flare up from loan situations that go sour. Not only does the IOU provide security for the lender, but it also gives the borrower a minute to pause and reflect on whether the risk of taking on the loan is worth ruining relationships if they can't pay it back. IOU forms are simple to make, add an extra layer of protection for the lender and clearly define the terms of the agreement to the borrower. And if the loan is large, it can generate much more confidence than a verbal agreement.

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OTHER NAMES I Owe You Form Debt Acknowledgement Form

What is an IOU Form?

I Owe You(s)' or IOUs are often thought of as informal loan agreements, but both the lender and the borrower can benefit from having a written and signed agreement. Sometimes IOU Forms are called Debt Acknowledgment Forms, but they perform the same function.

A signed IOU Form shows the lender that the borrower is, in good faith, planning on paying back the loan. And if they don't, they have a legal document that can be used to recover what is owed to them.

When to use an IOU Form:

You are loaning a person money and want a record of the agreement.
You are accepting a loan from someone and want the terms in writing.
The loan includes interests and payment information that needs to be outlined.

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Legally binding and enforceable

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Date:

For value received, the undersigned (the "Borrower"), at , , , promises and (collectively, the "Borrower"), at , , , each as principal, jointly and severally, promise to pay to the order of (the "Lender"), and (collectively, the "Lender"), (or at such other place as the Lender may designate in writing), the sum of with

. TERMS OF REPAYMENT

. Payments

shown below and accrued interest in full on (the "Due Date"). in installments of interest only beginning on , and continuing until , (the "Due Date"), at which time the remaining unpaid principal and interest shall be due in full. in installments of , beginning on , and continuing until , (the "Due Date"), at which time the remaining unpaid principal and interest shall be due in full. in installments of , beginning on , and ending , (the "Due Date") at which time the remaining unpaid balance of the Note shall be due in full.

THE BORROWER UNDERSTANDS THAT THE PAYMENT OF THE ABOVE INSTALLMENT PAYMENTS MAY NOT FULLY AMORTIZE THE PRINCIPAL BALANCE OF THE NOTE, AND THEREFORE, A BALLOON PAYMENT MAY BE DUE ON THE DUE DATE.

. Application of Payments

All payments on this Note shall be applied first in payment of accrued interest and any remainder in payment of principal.

This Note is secured by personal property in a . This Note shall be secured by a to real property commonly known as , , . Any such prepayment shall be applied against the installments of principal due under this note in the inverse order of their maturity and shall be accompanied by payment of accrued interest on the amount prepaid to the date of prepayment.

. COLLECTION COSTS

If any payment obligation under this Note is not paid when due, the Borrower promises to pay all costs of collection, including reasonable attorney fees, whether or not a lawsuit is commenced as part of the collection process.

. DEFAULT

If any of the following events of default occur, this Note and any other obligations of the Borrower to the Lender, shall become due immediately, without demand or notice:

1) the failure of the Borrower to pay the principal and any accrued interest when due;

2) the liquidation, dissolution, incompetency or death of the Borrower;

3) the filing of bankruptcy proceedings involving the Borrower as a debtor;

4) the application for the appointment of a receiver for the Borrower;

5) the making of a general assignment for the benefit of the Borrower's creditors;

6) the insolvency of the Borrower;

7) a misrepresentation by the Borrower to the Lender for the purpose of obtaining or extending credit; or

8) the sale of a material portion of the business or assets of the Borrower.

assets pledged as security real estate pledged as collateral

. SEVERABILITY OF PROVISIONS

If any one or more of the provisions of this Note are determined to be unenforceable, in whole or in part, for any reason, the remaining provisions shall remain fully operative.

. MISCELLANEOUS

All payments of principal and interest on this Note shall be paid in the legal currency of the United States. The Borrower waives presentment for payment, protest, and notice of protest and demand of this Note.

No delay in enforcing any right of the Lender under this Note, or assignment by Lender of this Note, or failure to accelerate the debt evidenced hereby by reason of default in the payment of a monthly installment or the acceptance of a past-due installment shall be construed as a waiver of the right of Lender to thereafter insist upon strict compliance with the terms of this Note without notice being given to Borrower. All rights of the Lender under this Note are cumulative and may be exercised concurrently or consecutively at the Lender's option.

This note may not be amended without the written approval of the holder.

. GOVERNING LAW

This Note shall be construed in accordance with the laws of the

. SIGNATURES

This Note shall be signed by and and by . , on behalf of

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, this Agreement has been executed and delivered in the manner prescribed by law as of the date first written above.

Signed this _____ day of _______________, _____, at ___________________________, _________________________ .

Borrower:


By:	Date:

Lender:


By:	Date:

Dated: _________________________

By:____________________________________________________

The is secured by collateral pledged by . Therefore, a Security Agreement should be signed by the parties in addition to the .

and fail fails or and and

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IOU Form FAQs

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What should be included in an IOU agreement?
If you want more than just a handshake to define the terms of the loan, you'll want to make a written IOU agreement that at least includes the names of the people involved, the loan amount, signatures and the date. But unless the loan is small, you'll likely want to include more such as:
- Contact information
  Names, addresses and phone numbers for the lender and borrower.
- Payment information
  The amount of the minimum payment, payment due dates, late dates, late fees and interest rates. What is allowed as acceptable payment such as cash, bank deposit, online payment or other. Terms of early pay-off if needed.
- Termination details
  What happens if the loan is not repaid according to the agreement. It may include taking possession of collateral, acceleration of debt (full balance due in full) and collection costs.
Does an IOU contract need witnesses or to be notarized?

Not all states require other witnesses to sign the contract for it to be enforceable, but if the loan is large it is recommended. It's simple to find notary services in your area and often your bank or credit union has one on staff. It may be free or low-priced depending on the services you use.
Why do I need a formal IOU Agreement?

Some may worry that formal paperwork might put a strain on good relationships, such as family members or good friends loaning money. However, many more relationships have been damaged by someone not paying back a loan than someone asking for a written agreement. It is in everyone's best interest to make the IOU contract. The only time a lender does not need an agreement is if they are 100 percent willing to let the money or property go whether they get paid or not.
One of the biggest negative sides to personal loans not being repaid is the strain it puts on the relationship and even other related parties. Friendships can dissolve and family gossip can flare up from loan situations that go sour. Not only does the IOU provide security for the lender, but it also gives the borrower a minute to pause and reflect on whether the risk of taking on the loan is worth ruining relationships if they can't pay it back.
IOU forms are simple to make, add an extra layer of protection for the lender and clearly define the terms of the agreement to the borrower. And if the loan is large, it can generate much more confidence than a verbal agreement.

Ask a lawyer

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