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An IOU Agreement is a simple written promise to repay money borrowed from someone else. While less formal than a full loan agreement, it still creates a legally binding contract under English law when it includes the basic details: the amount borrowed, repayment terms, and signatures of both parties.

Courts in England and Wales will generally enforce IOUs as valid debt instruments, provided there's clear evidence of the borrower's intention to repay. They're commonly used between friends, family members, or small businesses for short-term lending, though it's usually safer to use a proper loan agreement for larger amounts or complex repayment schedules.

Use an IOU Agreement when you need to document a straightforward loan between friends, family members, or small business associates in England and Wales. It's particularly useful for short-term lending situations under £5,000 where you trust the borrower but still want basic legal protection without the complexity of a formal loan contract.

The agreement works best for single payments or simple repayment schedules. For larger amounts, business loans, or situations involving interest or collateral, you'll need a comprehensive loan agreement instead. Remember that even a basic IOU can be enforced in court if the borrower defaults on repayment.

• Basic Promissory Note IOU: The simplest form, stating only the amount borrowed and promise to repay
• Scheduled Payment IOU: Includes specific dates and amounts for multiple repayments
• Interest-Bearing IOU: Details both principal and agreed interest rates
• Secured IOU: Names specific assets as collateral for the loan
• Witnessed IOU: Includes third-party signatures to strengthen legal validity

• Individual Lenders: Friends, family members, or private individuals who loan money and need a written record of the debt
• Individual Borrowers: People seeking informal loans who want to demonstrate their commitment to repayment
• Small Business Owners: Entrepreneurs using IOUs for short-term cash flow between trusted business associates
• Witnesses: Independent third parties who sign the IOU to strengthen its legitimacy
• Legal Advisors: Solicitors who may review or enforce IOUs when payment disputes arise

• Loan Details: Record the exact amount being borrowed and any agreed interest rate
• Party Information: Gather full legal names and addresses of both lender and borrower
• Payment Terms: Specify repayment date(s) and method(s) of payment clearly
• Witness Planning: Arrange for an independent witness to observe the signing
• Documentation: Make three copies - one each for lender, borrower, and witness
• Signatures: Ensure all parties sign and date the document in each other's presence

• Identification: Full legal names and addresses of both lender and borrower
• Loan Amount: The exact sum being borrowed, written in both numbers and words
• Payment Terms: Clear statement of repayment date and any installment schedule
• Interest Rate: Any agreed interest rate, clearly stated as an annual percentage
• Signature Block: Space for dated signatures of both parties and witness
• Default Clause: Consequences of non-payment or late payment
• Governing Law: Statement that English law applies to the agreement

An IOU Agreement differs significantly from a formal Loan Agreement (while not in the provided list, this is the most relevant comparison for clarity). The key distinctions help explain when to use each type of document in England and Wales:

• Formality Level: IOUs are informal documents suitable for personal loans between trusted parties, while Loan Agreements are comprehensive legal contracts with detailed terms and conditions
• Complexity: IOUs typically contain basic information about the debt and repayment, whereas Loan Agreements include detailed clauses covering interest calculations, default procedures, and security arrangements
• Legal Protection: While both are legally binding, Loan Agreements offer stronger protection and easier enforcement in court due to their detailed terms
• Cost and Time: IOUs can be written quickly at no cost, while Loan Agreements often require legal expertise and more time to prepare