How to Properly Borrow Money: Basic Rules for Drafting an IOU

Lending money between friends, acquaintances, or relatives is often based on trust. However, even in good relationships, disputes may arise regarding the amount, repayment terms, or the very fact of transferring funds. In such cases, an IOU helps clearly document the agreements between the parties and avoid misunderstandings. The document confirms the receipt of money, defines the terms of its return, and can become important evidence in case of a dispute.

IOU: why the document is needed

If you are lending money, an IOU is one of the best ways to formally record agreements in writing and increase the likelihood of repayment.

It is useful for both parties. For the lender, the document confirms the fact of money transfer and the terms of repayment. For the borrower, the IOU also serves as protection in case additional claims arise after the debt is repaid or during the fulfillment of agreements.

What information must be included in an IOU

The IOU is drawn up in written form — either handwritten or printed.

The document must specify:

• the date and place of drafting;
• the full names of the parties;
• passport details and residential addresses of the borrower and lender;
• the amount of the debt in numbers and words;
• the term and method of repayment;
• conditions of money transfer;
• possible penalties for late repayment;
• signatures of the parties.

For example, the IOU can state: "I undertake to repay the debt in full by January 25, 2027, in cash."

It is also advisable to record the fact of money transfer: "The money was received in full at the moment of signing this IOU."

If the parties wish, they can provide for liability for late repayment of the debt: "In case of late repayment, I undertake to pay a penalty of 1% of the debt amount for each day of delay."

What to pay attention to before signing the IOU

Before signing the document, carefully check all the specified information.

Special attention should be paid to the accuracy of the parties’ personal data, the debt amount, and the repayment terms.

The IOU should not contain corrections, strikethroughs, or unclear wording that could lead to different interpretations of the document’s content.

Is notarization of the IOU required

Notarization of the IOU is not mandatory.

A document signed by the parties in simple written form has legal force.

If the loan amount is significant, the parties may invite witnesses. If necessary, they can confirm the fact of money transfer and the drafting of the IOU.

Where the IOU is kept

Usually, until the full repayment of the funds, the IOU is kept by the lender.

After the debt is repaid, the document is handed over to the borrower or the parties may agree to destroy it.

The IOU can also be drawn up in two copies — one for each party.

What to do if the debt is not repaid

If the borrower does not repay the funds within the specified period, the lender has the right to go to court.

There is a three-year period from the date of debt repayment indicated in the IOU to file a claim.

Therefore, it is important not only to properly draft the document but also to keep it until the parties fully fulfill their obligations.

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