If not stated otherwise, the interest accrued at the end of each compounding period will be paid to the lender at the end of each compounding period. This is called “simple interest”, or “simple annual interest” if the compounding period is one year. I.e. you simply give me the interest you owe me at the end of each compounding period, and make no payment on the principal. This is also known as an “interest only” loan. Thus after the end of each compounding period, you still owe me the same principal as at the beginning of the compounding period with no reduction in principal.

“Compound interest” is where you fail to pay me the interest earned at the end of each compounding period, and the interest “compounds.” In this case you start paying interest on interest during the life of the loan.

The amount of interest added at the end of the compounding period is calculated by multiplying how much money was borrowed at the beginning of the compounding period (often, but not necessarily, a year) times the interest rate per compounding period (usually, but not always, a month or a year).