How Repayment is applied to PRINCIPAL & INTEREST  or "Of the interest calculated what portion/fraction of this is payable in each repayment", decides Compound/Simple interest.

The lenders would want the repayments applied first fully to interest.

The borrowers would want the repayments applied first fully to the principal owing.

In Commercial practice payments are applied to oldest debt first.

Repayments can also be applied 50:50 between Principal and Interest, but no one did this all these years.

The most logical & justifiable position between the two parties to contract is;

"Repayments can be applied to Principal and Interest in the ratio of the amount owed to principal & interest at the time of each repayment".

 

Compounding frequency:

If interest is shown in account statement monthly, it means it is compounded monthly; if interest is shown every 3months, it means compounded quarterly, and so on.