Lending money to a friend is often based on trust. But even among close friends, misunderstandings can happen. That’s where a legal IOU between friends becomes important — not just for clarity, but for legal protection.
A well-written IOU can serve as a binding contract that helps both parties stay on the same page. Whether you’re loaning $100 or $10,000, taking a few extra minutes to document the terms could save your relationship and your wallet.
What Is an IOU?
A legal IOU between friends is a simple written document that confirms a personal loan and outlines repayment terms. It’s less formal than a full loan agreement, but it can still be legally binding if it includes key elements and is signed.
Unlike a verbal promise, a written IOU can be used as evidence in court. That makes it a smart move anytime you lend money to someone you know — especially if you want to protect your finances and the relationship.
Why a Legal IOU Matters
Friendships can fade. Circumstances change. You might trust someone today but find yourself chasing them for repayment later.
By creating a legal IOU between friends, you:
- Clarify repayment expectations from the start
- Avoid miscommunication and conflict
- Make it easier to enforce the agreement legally if needed
- Preserve your relationship through transparency
A handshake may feel friendly, but a document is what protects both of you.
What to Include in a Legal IOU
To make your IOU enforceable, it must clearly state the key details of the loan. Here’s what every valid IOU between friends should include:
1. Names and Contact Information
Include the full legal names, addresses, phone numbers, and email addresses of both the lender and the borrower. This ensures there’s no confusion about who is involved.
2. The Exact Loan Amount
Clearly state the amount loaned and the currency. Write it both numerically and in words (e.g., “$2,000 – two thousand dollars”).
3. Repayment Terms
Specify how and when the borrower will repay the loan. You can set a fixed date (e.g., June 1, 2025), create a payment schedule, or agree on flexible terms.
You should include:
- Payment due date(s)
- Payment method (bank transfer, cash, etc.)
- Early repayment option, if allowed
4. Interest (If Any)
You are legally allowed to charge interest on personal loans in most states, but it must comply with local laws. Clearly state:
- The interest rate (or write “no interest”)
- Whether it’s a flat fee or monthly/annual percentage
- How interest will be calculated
Tip: Even if you’re not charging interest, write that in the IOU to avoid disputes later.
5. Signatures and Date
Both parties must sign the IOU for it to be legally valid. Handwritten or electronic signatures are generally acceptable. Also include:
- The date of the agreement
- A witness signature, if desired
- Optional: Notarization for added legal strength
Optional: Add Legal Clauses
While not always necessary, adding clauses about late fees, legal costs, or jurisdiction can strengthen your IOU.
Example:
“If payment is not received within 10 days of the due date, a late fee of $25 will apply. Any disputes will be resolved under the laws of the State of California.”
Legal Considerations: Is It Enforceable?
In most states, a signed IOU is legally enforceable as long as it clearly outlines the loan amount, repayment terms, and both parties’ agreement.
Still, a few rules apply:
- Oral agreements are harder to prove than written ones
- Loans over a certain amount (e.g., $500 in California) may require written documentation under the Statute of Frauds
- Charging high interest may violate usury laws in your state
To check your state-specific rules, consult your state attorney general’s office.
Mistakes to Avoid
Here are some common pitfalls when writing an IOU between friends:
- Leaving out repayment terms or dates
- Not signing the document
- Failing to keep a copy for yourself
- Assuming trust will override legal details
A clear IOU is not a sign of mistrust — it’s a sign of respect for the relationship and the loan.
Sample IOU Template (Free to Use)
Here’s a simple example you can copy and customize:
IOU Agreement
Date: [Month Day, Year]
I, [Borrower’s Full Name], residing at [Address], hereby acknowledge that I owe [Lender’s Full Name], residing at [Address], the amount of $[Amount] (written out in words).
I agree to repay this amount by [Due Date] in full via [Payment Method].
[Optional: An interest rate of X% will apply to the unpaid balance.]
Signed:
Borrower’s Signature
Lender’s Signature
Keep a copy for both parties and consider scanning it for backup.
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Final Thoughts
Lending money to a friend shouldn’t be a risk. A well-written IOU ensures that both parties are on the same page, reduces misunderstandings, and keeps things professional — even in a personal relationship.
Don’t leave it to memory or text messages. Use a simple IOU and protect yourself legally and emotionally.
For more on writing personal loan agreements, see this official guide to promissory notes from the Consumer Financial Protection Bureau.
