An IOU loan is a financial agreement between two parties, in which one party agrees to lend the other a specific amount of money at an agreed-upon interest rate. The borrower agrees to pay back the loan plus interest within a specified period of time. As with any loan, failure to repay can result in late fees and/or legal action. An IOU loan is typically used when both parties trust each other and there is a desire to keep the agreement off the public record, such as when friends or family members are loaning money to one another. With this type of loan, there is a greater sense of flexibility and understanding, but borrowers should still exercise caution, as missed payments may still have serious consequences.