IOU that is the abbreviation of I owe you, is actually an informal document for the acknowledgment of debts. It is normally written in the event when you are going to lend some amount of money to anyone that could be your relative, friend or anyone. You write this informal document to keep it as a proof of loan agreement and when you to get that lending amount back from the borrower by a specific time.

Steps to Write an IOU Document

If you want to write an IOU and don’t know how to write it then follow the steps given below.

Specify what is being borrowed?

First of all, while writing an IOU document you should clearly highlight the object which you are lending and if it is a particular amount of money then also specify the exact amount which you have lent.

Specify the Repayment Deadline

You should specify the deadline of the loan repayment in that IOU document.

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An IOU note  also known as “Promissory Note” is a commitment in writing for paying a certain debt. It is also called a Loan Note Agreement. Others names for it also include Note Form, Loan Note etc.

Format Promissory Note are drafted by lawyers or attorney hired by banks or other financial institutions like credit card companies and car loan providers.

Legally, anyone can write his own Promissory Note and its considered a legal tender and it is binding on the person who writes it.

9 Essential Elements of Promissory Note

There are certain requirements for a promissory note to be a legally binding document. The requirements are no more than specific information about type and nature and timing of the transaction.

1. Date of the Promissory Note should be clearly mentioned at the very top of the page.
2. The Amount of Principal Sum or in layman’s terms the money borrowed should be mentioned both in words and numbers. (as if you are writing a check)
3. Nature of the loan must also be clearly mentioned. for example it should be clearly stated if the loan needs to be paid on demand or at a specific date in future. Read the full story

There are several financial transactions that are so routine and informal that a legal contract would seem like overkill. Instead of that, a less complicated method is preferred to use by a number of people and that method is referred to as an IOU. An IOU, that can be in written or verbal form, is just an informal acknowledgement of a small debt, it is usually between friends, co-workers or family members. For instance an employee who borrows some change from a petty cash fund, may write an IOU to account for the money.

From where the name comes?

The name IOU has been taken from the literal phonetic spelling of “I Owe You.” The debtor when writing out a formal note acknowledging a debt often found that it is much easier to abbreviate “I owe you…” to IOU. Even though the origin of this abbreviation is English, other countries also recognize the meaning that is there behind an informal IOU.

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A loan is the name given to a financial transaction in which one party (the lender) agrees to give another party (the borrower) a certain amount of money with the expectation of total repayment. Mostly the specific terms of a loan are spelled out in the form of a promissory note or other contract. It depends on the lender that he can ask for interest payments in addition to the original amount of the loan (principal). The borrower must have to agree to the repayment terms, that includes the amount owed, interest rate and due dates. Financial penalties are also assigned by some lenders for missed or late payments.

When will you require a Loan?

Many people tend to avoid applying for one until it becomes absolutely necessary due to the reason that a loan may contain many hidden costs such as interest payments and finance charges. If you purchase a new vehicle or home it becomes almost always necessary for you to get some form of financial loan, it can be a bank mortgage or a private loan with the seller.

If you have to finance a higher education then it may also require a federally-backed student loan. At the time of the application interest rates on these types of large loans can be fixed  or it might  vary according to the federal prime interest rate.

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