Loan agreement is generally between two individuals, first party, the lender, who lends the money (loan amount) and to the borrower (second party) who receives the loan. The loan will carry interest that is predetermined and mutually agreed upon and other terms and conditions set forth by the lender. The loan agreement also predetermines, in terms and conditions, the penalty and compounded interest if there is a delay in returning the principal amount with interest. Loan agreement stands valid when executed on e stamp paper and signed by both the parties. If the loan is defaulted, that is the borrower fails to keep the commitment or delays in returning the principal amount with interest, then this loan agreement is a important document to ensue litigation.