IOU Template: Simple Loan Note Between Two Parties

An IOU is a short written acknowledgment that one person owes money to another. The name comes from "I owe you." A good IOU template records who lent what to whom, when it will be repaid and both signatures, which turns a handshake loan into evidence you can rely on if repayment stalls. For anything beyond a small amount, you will want to upgrade it to a promissory note with interest and default terms.

This guide gives you a free IOU template, explains the difference between an IOU and a promissory note, covers the US tax rules for interest-free loans to family and friends, and walks through a worked repayment example. It is general information, not legal or tax advice.

What is an IOU?

An IOU is an informal debt document. At its most basic, it says "I owe [name] $[amount]" and is signed by the borrower. That is enough to show a debt was acknowledged, but it leaves out the details a court or a nervous lender would want: when the money is due, whether interest applies, and what happens if payments stop. Adding those elements moves the document toward a formal promissory note.

Feature	Basic IOU	Detailed IOU (template below)	Promissory note
Amount owed	Yes	Yes	Yes
Promise to repay	Implied	Yes	Yes, unconditional
Due date or schedule	Often missing	Yes	Yes
Interest	No	Optional	Usually
Late fees and default terms	No	Simple	Detailed, may include acceleration
Collateral	No	No	Optional (secured note)
Best for	Very small, casual debts	Personal loans up to a few thousand dollars	Larger or business loans

IOU template

Copy and fill in:

IOU / Acknowledgment of Debt
Date: [date]
Borrower: [full name], [address], [phone/email]
Lender: [full name], [address], [phone/email]
Amount: $[amount] ([amount in words] dollars)
Date money received: [date], by [cash / bank transfer / check no.]
Purpose (optional): [e.g., car repair]
Repayment: Borrower will repay the full amount by [date] / in [number] payments of $[amount] due on the [day] of each month starting [date].
Interest: [None / [rate]% per year, simple interest]
Late payment: If a payment is more than [15] days late, [the full balance becomes due / a late fee of $[amount] applies].
Prepayment: Borrower may repay early without penalty.
Signatures: Borrower [signature, date]; Lender [signature, date]; Witness (optional) [signature, name, date].

Make two copies so each party keeps a signed original, and keep proof of the transfer, such as a bank statement, with it.

How to write an IOU: step by step

1. Use full legal names and addresses, not nicknames.
2. Write the amount in numbers and words to prevent alteration.
3. Pay by traceable method (bank transfer or check) so there is independent proof the money moved.
4. Set a due date or schedule. "When you can" is how friendships end.
5. Decide on interest and check the tax rules below if the loan is large.
6. Agree what happens if a payment is missed.
7. Both sign and date it; add a witness for larger sums.
8. Log each repayment and give a receipt; when it is paid off, mark the IOU "paid in full," sign and return it.

Do family loans need interest? The IRS rules

Under Internal Revenue Code section 7872, a loan between individuals made at no interest or below the applicable federal rate (AFR) can be treated as if the lender charged the AFR and then gave the forgone interest to the borrower as a gift. Key points:

• $10,000 de minimis exception: gift loans between individuals totaling $10,000 or less are generally ignored, unless the borrower uses the money to buy income-producing assets such as stocks.
• $100,000 rule: for gift loans up to $100,000, the imputed interest is generally limited to the borrower's net investment income, and treated as zero if that income is $1,000 or less (tax-avoidance loans excepted).
• Gift tax context: the annual gift tax exclusion is $19,000 per recipient for 2026, so the forgone interest on a modest family loan rarely creates a gift tax filing on its own.
• AFRs change monthly and are published by the IRS by loan term (short, mid and long).

If you are lending more than $10,000, charging at least the AFR and writing a formal note keeps the IRS from treating the loan as a disguised gift. Interest you receive is taxable income to you.

Worked example: a $4,800 IOU repaid in installments

Illustrative: Maya lends her friend Jordan $4,800 on March 1 to cover a used car repair. The IOU says Jordan will repay $400 per month on the 15th, starting March 15, no interest, with the full balance due if any payment is more than 30 days late.

Payment	Date	Amount	Balance
1	Mar 15	$400	$4,400
2	Apr 15	$400	$4,000
3	May 15	$400	$3,600
4	Jun 20 (late)	$400	$3,200
5-12	Jul 15 - Feb 15	$3,200 total	$0

Because the loan is under $10,000 and Jordan is not buying investments, no imputed interest applies. Maya sends a short payment receipt after each transfer and, at the end, writes "paid in full" on the IOU. If Jordan had stopped paying in month 6, Maya would have a signed document, bank records of the loan and a payment log for a small claims filing.

If Maya had wanted interest, say 5% simple per year, the cleaner route is a promissory note with an amortization schedule rather than an IOU.

IOUs in a small business

Informal IOUs cause problems in business bookkeeping. Common situations:

• Owner lends money to the business. Document it with a note, interest rate and repayment plan. Record it as a liability on the balance sheet, not as revenue or owner's equity.
• Business advances money to an owner or employee. Treat it as a receivable with a written repayment schedule, or it may be taxed as wages or a distribution. In UK companies, these transactions run through the director's loan account.
• Customer cannot pay an invoice in full. Rather than an IOU, use a written payment plan agreement that references the unpaid invoice number, then send a statement after each payment.
• Petty cash IOUs. Slips in the cash box for staff who borrowed cash should be logged and cleared quickly; see our petty cash log guide.

IOU vs invoice vs payment plan: which document do you need?

Situation	Best document	Why
You lent a friend $300 for a weekend	Simple IOU or a written message record	Small, informal, low risk
You lent a relative $3,000 to be repaid monthly	Detailed IOU (template above)	Schedule and signatures prevent disputes
You lent $25,000, or you are lending to a business	Promissory note, possibly secured	Interest, default terms, IRS rules on below-market loans
A client owes you for work completed	Invoice	Shows goods or services, amount, due date and payment terms
A client cannot pay an invoice in one go	Payment plan agreement referencing the invoice	Keeps the original debt and adds an agreed schedule
You sold an item like a car or equipment	Bill of sale, plus a note if paid over time	Proves transfer of ownership

The common thread is evidence. Whichever document you choose, keep proof that money or work actually changed hands, a record of every payment and a running balance. For repayments, a simple receipt with the date, amount, method and remaining balance is enough; our payment receipt template covers the fields.

Should an IOU include interest?

For small personal loans, most people skip interest, and under the $10,000 exception the IRS generally does not impute any. If you do charge interest, keep it simple: state an annual rate, say whether it is simple or compound, and show how it is calculated. Example: $6,000 at 4% simple interest for one year costs $240 in interest, so 12 equal payments would be $520 each. Check your state's usury limits before charging a high rate; they vary widely, and a rate above the limit can make the interest unenforceable.

Lending money as a business owner

Owners are often asked to lend to friends, family or staff, and sometimes to their own company in a slow month. Before writing an IOU, ask whether you can afford to lose the money; if not, it is not a loan you should make. Keep personal loans separate from business funds, and do not dip into your business emergency fund to make a personal loan, because you may need that cash for payroll or a slow-paying client.

Common IOU mistakes

• No due date, which makes it hard to say when the debt is in default.
• Handing over cash with no record that the money moved.
• Only the borrower keeping a copy.
• Not recording payments, then arguing about the balance.
• Large interest-free loans with no paperwork, which can create gift tax and imputed interest issues.

What to do if an IOU is not repaid

1. Send a friendly written reminder showing the balance and payment history.
2. Offer a revised schedule in writing if the borrower is struggling.
3. Send a formal demand letter giving a final date, typically 10 to 14 days.
4. File in small claims court if the amount fits your state's limit, bringing the IOU, proof of transfer and your payment log.
5. If you write the debt off, a nonbusiness bad debt may be deductible as a short-term capital loss in some cases; check with a tax professional.

If the money you are owed comes from work rather than a personal loan, an invoice is the better document. Create one with our free invoice generator, no sign-up needed, and download it as a PDF to send with your payment reminder.