The interest is based off the balance left.

So if they take out a 10 BTC Loan at 10% with payments every 7 days for 28 days.

they'll make four payments.  the interest on the first payment is 10% of the principle.  the interest of payment two is 10% of the principle left at payment twos time. and so on. 

I took a 1 BTC loan, to build reputation, paid 10% per day for 7 days and ended up paying something like 1.48 BTC back.  I found out the hard way how the interest was compounded.

I like the place none the less.  I like loaning there.  if you have a rating of 6 or higher, I"ll consider loaning to you.  If you are tied to the bitcoin-otc and or this forum I'll consider.