If this were a standard installment loan, the monthly payment (according to Excel's PMT function) would be $86.99 for our 8% one-year loan. My sense is that what is being done is a simplistic approximation of an installment loan, which is easier to calculate and to understand, and requires just a bit higher payment for short loans because it doesn't take the declining balance into account. I would not be surprised if it were common (somewhere?) for such short-term loans. I haven't yet taken time to research it.

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