Amortization and compound interest are two different ways to calculate interest. Amortization is usually for medium-term financings, such as auto loans. Compound interest is typically for much longer loans, like a 30-year mortgage (it's also possible to get an amortizing or simple interest mortgage).nnWith amortization, the interest amount is based on the principal at the time you took out a loan. With compounding interest, the accumulated interest is added to the principal balance again and again, whether monthly, quarterly, or annually.nnThe interest compounds in correlation to your payment frequency. Compounding interest is an ever-increasing event.