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I live in Germany and I use public transport to go to work. I have a yearly public transport ticket which costs 1000€. The transport association offers me the choice of paying 1000€ in one transfer or via direct debit in 12 monthly installments of 1000€/12.

I understand the benefit of paying the ticket in monthly installments but I cannot figure out what the benefit would be if I paid the entire fee at once. I suspect that there might be tax implications since I believe that I can recover travel expenses from taxed income. Would paying one way or the other make a difference?

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    The obvious upside of paying the lump sum is not having to even consider all the monthly payments - incl. making sure you have enough money in the account, seeing them in the balance sheet, etc. I am not saying it's worth it. – Grzegorz Oledzki Sep 5 '18 at 13:15
  • @Grzegorz Oledzki Indeed, but the direct debit means, that I don't actually have to pay anything, it happens automatically. Still, good point for having money in the account. – AndrejaKo Sep 5 '18 at 13:16
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    This is a weird system: normally there's a discount if you pay yearly instead of monthly (for all kinds of subscription-like services), because then the company has all the money right away. – molnarm Sep 5 '18 at 13:19
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    There would be a tax difference if not all of the 12 payments land in the same tax year. – Ben Voigt Sep 5 '18 at 13:21
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    No, you'd have to contact your competent tax advisor (I'm not). But I will be very surprised if a single pass + single payment is somehow divided up. – Ben Voigt Sep 5 '18 at 13:29
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You can lower your taxes with tickets that get you to work.

But only if your total work expenses for the whole year will exceed 1000€

So if you start paying in September monthly fees you will have only 4 months you can add to your TWE (334 euro) . If you pay whole sum upfront that make you go above needed expenses.

It's a calculation you need to make if paying upfront whole sum will lower your income tax to smaller bracket or not.

Read more on Finanztip (site in German)

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Pros of paying in one lump sum:

  • You don't have to worry about the expense for a year
  • No risk of future overdrafts
  • One less "bill" to worry about
  • You get to deduct the expense sooner (if applicable)

Pros of paying in installments

  • You can put the expense in your monthly budget
  • It "feels" more like a recurring living expense (helpful when deciding what to cut if necessary)
  • Obviously the only option if you don't have all of the money up front.

It's a shame that you don't get some sort of discount for paying in lump sum

  • Very tenuous pro of instalments: if you have the money up front (i.e. able to pay all at once) it could theoretically be earning money for you while waiting to be paid in instalments. Though with typical interest rates, the amount is probably negligible. – TripeHound Sep 5 '18 at 15:23
  • @TripeHound Yeah I thought about the TVM benefit of installments but came to the same conclusion as you. (it would be more of a con to lump-sum if you had to borrow to make the upfront payment) – D Stanley Sep 5 '18 at 15:25
  • I would hope there's a discount for buying a yearly ticket over twelve monthly tickets (that's what happens in the UK), but then I'm surprised the let you pay for a yearly in installments. – TripeHound Sep 5 '18 at 15:25
  • Personally, if there is no discount, I'd go with the installment payments – 0xFEE1DEAD Sep 5 '18 at 15:36
  • @0xFEE1DEAD I rejected your edit as I don't necessarily agree with the additional pros. If the product is a yearly pass it may not be possible to defer/skip payments or to get refunds in case of loss or theft. I agree that those would be benefits but ion this case it seems unlikely. Plus, if you add an additional answer you'll get the credit instead of me :) – D Stanley Sep 5 '18 at 15:40
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This is equivalent to being offered 0% financing if you want it. I usually would lean towards accepting because I prefer to keep my money longer and possibly earn some amount of interest on it. However, I'd probably pass on the financing if it's a small enough amount that it wouldn't put a noticeable dent in my cash account balance, and if it would require a credit check (since in my country the check can slightly impact your credit score).

Regarding taxes, typically you can deduct actual expenses paid during the tax year, but as you mentioned in comments this may not be the case for this type of expense. That would mean either you would pro-rate the deduction for the amount used in the current tax year or you could just choose monthly and not worry about it.

  • The way I understand the OP's post the ticket price and timing is the same regardless of whether it's paid in installments or as lump sum. Once a yearly ticket is purchased, I don't think the installments to pay for it can go up. – mastov Sep 7 '18 at 9:26
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    @mastov after re-reading I think you're right. I was thinking monthly ticket vs yearly ticket. Thx for pointing that out. I've updated my answer. – TTT Sep 7 '18 at 12:07

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