What does "erst" mean in this context?
Möchten Sie gleich zahlen oder erst später?
Is it necessary to use "erst" in this sentence while I think "später" single-handedly makes sense?
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Möchten Sie gleich zahlen oder erst später?
and
Möchten Sie gleich zahlen oder später?
carry the same primary meaning and are well-formed.
However, the erst adds some information about how the speaker relates to the situation: using erst in this situation, the speaker emphasises that he leaves it completely open to his counterpart to decide when to pay. You can see this as a form of being polite and friendly. Without the erst, the utterance may seem a little bit rough or demanding. Of course, it depends also on the tone.
Adding the »erst« is a mild method to indicate that one would prefer to get the money at once. Without the »erst« both possibilities would be equivalent.
In this context you could translate "erst später" as "wait until later".
"Möchten Sie gleich zahlen oder später?" -> "Do you want to pay now or later?"
"Möchten Sie gleich zahlen oder erst später?" -> Do you want to pay now or wait until later?"
Putting "erst" in makes it seem a little more polite, but I don't see a difference in meaning.