A legally binding IOU — a written promise to pay back borrowed money. Use for personal loans between friends, family, or business partners. More formal than a handshake, simpler than a full loan agreement.
A promissory note is a written promise by one party (the borrower) to pay a specific amount of money to another party (the lender) under defined terms. Unlike a verbal IOU, it's legally enforceable and can be used in court to collect unpaid debts.
Short, simple, focuses on the borrower's promise to pay. Usually 1 page. Good for informal lending between trusted parties.
Longer, more detailed, covers both parties' responsibilities. Includes representations, warranties, defaults, collateral. For larger or more complex loans.
Yes. Once signed, it's enforceable in court. If the borrower doesn't pay, the lender can sue and, if successful, have assets seized or wages garnished to recover the money.
Not legally required for most loans, but recommended for amounts over $1,000. Notarization is cheap ($5-$25) and makes the note much harder to dispute.
Yes, but the IRS has minimum interest rates (Applicable Federal Rate) to prevent gift-tax issues on loans over $10,000. Below AFR, the IRS may treat the forgone interest as a gift.
Send a formal demand letter. If that doesn't work, you can sue in small claims court (for amounts under $5,000-$10,000 depending on state) or regular court. Having a signed promissory note makes winning much easier.
Secured notes have collateral (car, jewelry) that the lender can seize if borrower defaults. Unsecured notes have no collateral — the only recourse is a lawsuit. This template is for unsecured loans.