You may have heard someone, perhaps, a friend request for an IOU. Of course, you understand what it means, but do you really understand all that it stands for? Let’s do a quick learning.
What is an IOU?
An IOU is an informal document that acknowledges a debt owed. IOU is an abbreviation, in phonetic terms, of I Owe You. The debt owed does not necessarily have to be money, but can also involve other products.
Because IOUs are informal, those issuing the IOU are given free reign when writing and issuing an IOU. Things like time, date, interest, and payment type are not mandatory but may be implied.
What is a Loan Note?
Another extended form of an IOU is a loan note which is usually from one party to another, and enables the one receiving the payment to receive payments (possibly with interest) over a set period of time, ending with the date at which the entire loan is to be repaid.
Loan notes are usually provided in place of cash at the payee’s (the one receiving the payment) request.
An example of when loan notes can be used is when an individual has just received a huge payment from a settlement or payout from a company, and such person wants to avoid paying undue taxes on this money. In cases as these, the individual is given a choice between cash payout or a loan note.
When loan notes are used between businesses, the purchaser is able to act as a borrower and make payments over time, often at a minimal or “at cost” interest rate.
And there goes the explanation of an IOU and loan note. No need to be in the dark about these terms anymore!
So, the next time you want to pay me in the hundreds of millions, I will much prefer a loan note, thank you.
