IOUs have come up as a great way to borrow and lend money among friends and family. Lending and borrowing money to and from friends and relatives is nothing new. It has been a way to acquire capital for centuries.

An IOU gives the lending a legal seal of approval, so to speak.

Extending an IOU is like giving a personal loan without any details. Like other personal loans, they can have an interest rate, a mutually agreed-upon principal amount, and perhaps some other terms and conditions – it depends solely on the two parties involved and no financial institution.

However, borrowing money from friends and relatives often burns bridges. It brings a huge amount of discomfort and guilt. Rather than borrowing from them, many choose to borrow from financial institutions instead.

At the very least, they won’t owe others a favour. 

What are IOUs? Are they legal in Singapore?

IOU stands for “I Owe You”.

Lending money to friends is generous, but having an IOU signed is a legal process – one that establishes the terms and facts of the loan. IOUs are perfectly legal as long as they are conducted in the way they are meant to be conducted (more on this later).

An IOU is an informal document for the most part. That being said, it can be invoked in a court of law in case of some dispute regarding the loan or its repayment. It’s not, however, driven by the requirements to be met under the Bills of Exchange Act – which are formal regulations any licensed moneylender must meet.

Unlike other loans that you acquire from licensed moneylenders or financial institutions such as banks, IOUs don’t generally have repayment terms like the time or frequency of repayment.

IOUs do include the name of the debtor and the amount. They can also include the name of the creditor. It’s a common practice to sign the IOU and/or have some distinguishing marks on it. It provides authenticity.

In many ways, you can say that IOUs are an acknowledgment of debt.

In comparison to a promissory note, the IOU does not contain the promise to pay, steps to pay, and any late fees or clauses for what happens if you fail to pay. The IOU merely recognizes that a debt exists between two parties in addition to how much money is owed.

Are there any license requirements?

No. You don’t need a license to lend money to friends and relatives with an IOU.

Does that make you an unlicensed moneylender? No, it doesn’t. You see, the unlicensed moneylender lends money and provides loans to people as a business. As you’re providing loans as an individual, you can provide loans to as many friends and family as you’d like.

The moment it becomes grey is when you try to run this operation as a business, giving loans to anyone who asks for one. At that point, you become an unlicensed moneylender or a loan shark.

Although technically, Singapore’s Moneylending Act has a phrase that can make you a moneylender in law. The Act reads:

“Any person, other than an excluded moneylender, who lends a sum of money in consideration of a larger sum being repaid shall be presumed, until the contrary is proved, to be a moneylender.”

So, intuitively, lending money makes you a moneylender, and then you have to go for a license. But the thing is that it’s rebuttable. You can rebut it by mentioning that you’re not carrying out a money lending business. Under the Moneylending Act, therefore, you don’t require a license.

And of course, to prove that you’re not running a money lending business, you need to not run one. That’s all. Authorities will understand in case of any dispute that you’ve just been lending money to friends and family.

If you’re looking for a licensed moneylender, you can consider getting multiple quotes within hours here. There are no obligations.

What about interests? How much interest can you charge?

Charging interest is okay. Given you’re not carrying out a business of money lending, it’s perfectly legal to charge interest on the amount you lend to friends and family with an IOU.

There’s a maximum interest rate for moneylenders. But as you’re not working as a licensed moneylender, you are not limited by that rule.

Make sure that an interest rate clause is drafted in the IOU.

You can decide on the interest rate mutually. You can also find the interest rate charged by banks on personal loans. As you are providing more convenience than a bank (no need to submit documents or have a good credit score, for example), you can charge a higher interest rate.

How to write an IOU?

Whether an IOU is handwritten or typed, notarized or not, it has evidentiary value in the court. Signatures of the debtor and the creditor give it more authenticity. Having a witness’s sign will improve its value further.

An IOU that’s properly signed is a document powerful enough to stand in court before a judge. It can also be used for debt collection if repayment issues arise.

There’s no need to get a lawyer to draft an IOU. Nevertheless, you can get one if the loan involves a significant amount of money.

An IOU is usually written from the point of view of the debtor. Here’s an example IOU that you can use:

I, (name), (NRIC number) of (address), contactable at (contact number) and (email address), acknowledge receipt of the sum of S$_____, being a friendly loan extended to me, at my request, by my friend/designation of a family member, (name) (NRIC number) of (address) today, by way of cash/cheque, (bank’s name) cheque no. __ dated __.

I promise to repay this sum in full to him/her along with a __% interest by (date of repayment). Dated this __ day of (month) (year).

– You can omit the repayment duration clause.

– You can add any other details such as if you’re holding some asset as security.

– If applicable, you can also include the payment frequency and the method of payment.

Guarantees and collateral

Guarantees and collateral security both apply to IOUs. These are a little complex, so let’s tackle them one by one.


You can get a third person (apart from the creditor and the debtor) to sign as a guarantor. In the event of a default or bankruptcy of the debtor, you can enforce the guarantee. The guarantee has to be in writing.

Get the guarantor to sign the IOU along with a witness while the debtor and creditor are also signing the document – it keeps things simple.


Collateral is possible in the event of a large sum. You can choose a property such as a house owned by the debtor as collateral security. Any form of security holding must be incorporated in the IOU. The secured property can be used to repay the loan in the event of a default or bankruptcy.

Make sure it’s a valuable property comparable to the loan amount or in the ballpark.

Holding securities isn’t as simple as just writing it down. Apart from consent, you will also need proper registration details. It’s recommended that you seek legal advice if you wish to incorporate collateral or hold something valuable as security while giving a loan through an IOU.

Debt collection and legal recourse

Let’s hope all goes well now and you are repaid with the interest without any hassle.

But if repayment is refused by the debtor then the IOU can be used to take legal action. Debt collection firms can be approached at this stage. Note that debt collectors usually take a fee as well as a percentage of the recovered sum.

You can also attempt legal recourse. If the debt exists legally then it has a strong chance of winning in any courtroom. Debt collectors and lawyers both need to see the IOU and read it carefully to ascertain the exact details.

See how you cannot take loan matters to the Small Claims Tribunals, it’s highly recommended that you go for a lawyer. Lawyers will be able to issue a letter of demand to the person in question. This is the first step in legally recovering the debt. If the letter of demand is ignored, then legal proceedings can follow.

If you have proper evidence of the loan then you can easily avoid a court hearing. Default judgments can help you solve the problem in this case. This is also why it’s highly recommended to get the IOUs signed in front of a witness, with their sign and details also present.

Claim limitation period

There’s a limitation period involved in IOUs when you wish to make a legal claim. If the IOU had a repayment date and the debtor fails to repay the debt by the due date then you can commence legal action within 6 years of the repayment date. In case the repayment date wasn’t mentioned, the 6-year time limit will start from the date the cause of action arises.

The specific limitation period can be different under different circumstances. You should seek legal help as well.


Borrow from other financial institutions instead

Rather than risking your friendship and kinship, getting IOUs, it might be the better option to borrow from a third party. 

Legal companies that are registered with the Ministry of Law offer reasonable and fast approval loans. Applying only takes 3 minutes! They are definitely unlike the notorious loan sharks who harm borrowers. These legal financial companies abide by the law.

They are very helpful if you need to borrow money urgently.

You can find out more about them here.