IOUs and Lending Money Safely

Think first before lending

The first question when deciding whether to lend is whether you could lose the amount without your life falling apart. However well you write an IOU, if the borrower can't pay it is hard to collect, and legal procedures cost time and money. So set an upper limit on what you can lend first, and decide only within it. Some people who find it hard to say no choose to give a smaller amount with no strings attached instead of lending. This guide is based on practice in South Korea.

Why an IOU matters

Asking a close friend or relative to sign an IOU can feel cold. But without a record, over time you each remember the amount and the due date differently, and that damages the relationship far more. If the borrower claims it was a gift rather than a loan, you first have to prove you lent it at all. Explaining that an IOU is not about distrust but a way to keep both memories aligned makes it easier to accept.

What the IOU must contain

There is no fixed form, but it must include everything needed if a dispute arises later. In Korea it is common to write the amount in both numerals and Korean words so it is hard to alter, and the due date should be an exact date. Vague wording like "I'll repay when I can" becomes a source of arguments about timing.

• Names, addresses and contact details of lender and borrower
• Amount lent (numerals and words) and the date it was lent
• Due date, and installment amounts if paid in parts
• Interest rate and payment dates, if interest is charged
• How repayment is made (account to pay into) and what happens if late
• Signatures or seals of both parties and the date written

Send the money by transfer

Just as important as the IOU is a record that the money actually changed hands. If you hand over cash, there can be a dispute over whether you really paid, even with an IOU, so where possible transfer it to an account in the borrower's own name and note in the memo that it is a loan. If they ask you to send it to someone else's account, write the reason into the IOU. Taking repayments by transfer also naturally records how much has been repaid.

Interest, guarantors and notarization

If you agree on interest, it must not exceed the legal maximum rate, and any excess is not recognized. The exact cap can change, so check official guidance. For larger sums, you can add a guarantor or have the agreement notarized. A notarial deed made in a certain form at a notary office may, in some cases, let you apply for enforcement without a separate lawsuit if the borrower doesn't pay. Ask a notary office about costs and requirements.

If they don't repay

If the due date passes without payment, act step by step rather than emotionally. First politely request repayment by a method that leaves a record, such as a text, and keep any reply promising to pay. If there is still no response, send a formal demand by certified letter, then consider court procedures such as a payment order or civil mediation. The right to claim money has a limitation period, so don't put it off too long.

• Request repayment by a traceable method
• Send a formal demand by certified letter
• Consider a payment order, civil mediation or small claims

Money between family members

When large sums move within a family, whether it was a loan or a gift can turn into a tax question. If it was a loan, an IOU and records of interest and repayment make it easier to explain later. Check the tax authority's official guidance for the specific criteria or consult a tax professional. Even between siblings or relatives, making the amount and due date clear is ultimately good for everyone.

Finally

An IOU helps you win a dispute, but before that it helps prevent one. When the amount and dates are clear, the borrower knows what to do and by when, leaving less room for misunderstanding. When part is repaid, exchanging a note of the amount and date, or recording it on a copy of the IOU, prevents arguments over what remains. Keep the original somewhere safe and take a photo of it too. If the sum is large or the borrower is already struggling to repay others, get advice before lending. This article is not legal advice. For your specific situation, consult a lawyer or a public legal aid service such as the Korea Legal Aid Corporation.