Note that Option B requires you to save an amount on a regular basis to have $1200 available in 12 months to pay the loan off (more than $83.33, less than $100, per month). Suppose you think you will not have the willpower to save regularly enough to make the payoff, but that you will make the monthly payment. Then you might rationally bind yourself to the monthly payment.

Another example of this. I teach at a university at which we get paid in 10 monthly installments (1 September through 1 June). A substantial fraction of my colleagues regularly ask that the University switch to paying on a 12-month basis--take the current annual salary and divide it by 12 (rather than 10)--the annual income is the same. When I suggest that simply having $X deducted and deposited each month in a savings account would accomplish the same thing, they tell me that they're afraid they would lack the required self-discipline.