How to write an IOU that both of you understand.

IOU, loan note or promissory note?

People use these words loosely, but they are not the same. An IOU usually just acknowledges a debt. A loan note or loan agreement also sets out how and when it will be repaid. A promissory note is a formal instrument: in many countries it must contain specific wording and elements to be valid, and it can be easier to enforce.

For a small loan between friends, a clear IOU or loan note is often enough. For a large amount, look up the formal requirements in your country or ask a lawyer.

What to include

• The full names of the borrower and the lender.
• The exact amount and the currency.
• The date the money was handed over, and how (cash, bank transfer).
• The repayment date, or the instalments with their dates and amounts.
• How the money will be repaid.
• What happens if a payment is late, if you agreed on anything.
• The date of the note, and the borrower’s signature or approval.

Common mistakes

• Leaving out the repayment date: "when you can" is the most common source of later arguments.
• Writing a round number when the real amount was different.
• Keeping the only copy: both people should have the same text.
• Changing the terms by message later without a new note.