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IOU Agreement
I need an IOU agreement for a personal loan of PKR 100,000, with a repayment period of 6 months, including a monthly interest rate of 5%. The agreement should specify the repayment schedule, late payment penalties, and include both parties' contact information and signatures.
What is an IOU Agreement?
An IOU Agreement is a simple written promise to repay borrowed money, commonly used in Pakistan for informal loans between friends, family members, or business associates. Unlike formal loan contracts, IOUs (which stands for "I Owe You") can be handwritten and don't require complex legal terminology or notarization.
While Pakistani contract law recognizes IOUs as legally binding documents, they should include basic details like the borrowed amount, repayment date, both parties' names and signatures, and any agreed interest rates. Though simpler than bank loans, it's wise to have a witness sign the IOU to strengthen its enforceability in local courts if payment disputes arise.
When should you use an IOU Agreement?
Use an IOU Agreement when lending money informally to friends, family, or business associates in Pakistan, especially for amounts that feel too small for a formal bank loan but too important to leave undocumented. This written record protects both parties and helps prevent misunderstandings about repayment terms.
The agreement becomes particularly valuable when lending larger sums, dealing with extended repayment periods, or when trust needs extra reinforcement. While Pakistani courts recognize verbal agreements, having a signed IOU with clear terms makes enforcement much easier if problems arise. It's also useful for tracking multiple small loans within business partnerships or family networks.
What are the different types of IOU Agreement?
- Simple Personal IOU: Basic handwritten note for small loans between friends or family, stating amount and repayment date
- Business IOU with Interest: Detailed agreement including interest rates, payment schedule, and late payment terms for commercial transactions
- Secured IOU: Includes collateral provisions where borrower offers specific assets as security
- Installment IOU: Structures repayment in multiple scheduled payments, common for larger amounts
- Joint IOU: Used when multiple borrowers share responsibility for repayment, popular in family businesses
Who should typically use an IOU Agreement?
- Individual Lenders: Friends, family members, or acquaintances who provide personal loans and need written proof of the transaction
- Small Business Owners: Entrepreneurs who lend to business partners or suppliers during cash flow gaps
- Borrowers: Individuals or small business operators who accept informal loans and agree to specific repayment terms
- Witnesses: Trusted third parties who verify the agreement's signing and can testify if disputes arise
- Legal Advisors: Lawyers who review or draft more complex IOUs, especially for larger amounts or business transactions
How do you write an IOU Agreement?
- Personal Details: Gather full legal names, CNIC numbers, and current addresses of both lender and borrower
- Loan Specifics: Document the exact amount, currency, and purpose of the loan
- Payment Terms: Define repayment date, installment schedule, and any applicable interest rate
- Witness Information: Arrange for a reliable witness and collect their contact details
- Security Details: List any collateral or assets being offered as security
- Documentation: Make multiple copies and ensure all parties receive one after signing
What should be included in an IOU Agreement?
- Party Details: Full names, addresses, and CNIC numbers of lender and borrower
- Loan Amount: Precise sum in both numbers and words, with currency clearly specified
- Repayment Terms: Due date, payment method, and any installment schedule details
- Interest Declaration: Clear statement of any interest rate or confirmation of interest-free status
- Default Provisions: Consequences of late payment or non-payment
- Signatures Section: Space for dated signatures of both parties and witness
- Witness Details: Name, CNIC, and contact information of the witness
What's the difference between an IOU Agreement and an Access Agreement?
An IOU Agreement differs significantly from a Loan Agreement, though both involve borrowing money. Understanding these differences helps you choose the right document for your situation.
- Formality Level: IOUs are typically informal, handwritten documents for personal loans, while Loan Agreements are formal contracts often used by banks and financial institutions
- Legal Detail: IOUs contain basic information like amount and repayment date, while Loan Agreements include comprehensive terms, conditions, and legal protections
- Enforcement Strength: While both are legally binding in Pakistan, Loan Agreements offer stronger enforcement mechanisms and clearer remedies for default
- Usage Context: IOUs work best for small, personal loans between trusted parties, while Loan Agreements suit business transactions and larger amounts requiring more protection
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