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Solar Financing: How Should You Pay For Solar Panels?

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Solar panel investment, 3D illustration
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Residential solar energy systems provide homeowners with a way to minimize their environmental impact and reduce their dependence on electric utilities. One of the biggest obstacles to going solar is the cost of installation, but thankfully, there are a number of solar financing options that homeowners can choose from.

In this article, we'll break down avenues for solar financing including paying in cash, taking out a loan and solar panel leasing. Read on to learn which option might be the best choice for you.

Disclaimer: This article is for informational purposes only. It should not be relied on for and is not intended to provide accounting, legal or tax advice.

Most Common Solar Financing Options to Choose From

When buying solar panels, there are generally three ways for homeowners to pay for their systems: cash, loan or lease. Here's a brief overview of these financing options:

  1. Pay in cash: The simplest way to purchase solar equipment is in cash. This way, you own the system outright and do not have to pay any kind of interest on it.
  2. Solar loan: A solar loan is similar to a home improvement loan — it's money you can borrow to cover the cost of solar panels, then pay back over an extended period of time (usually with interest).
  3. Solar lease: With a solar lease or power purchase agreement, you don't actually own the solar panels on your roof. Instead, you lease them from a solar installer and pay a fixed monthly amount to get electricity that is generated by your home's solar system.

Paying for Solar Panels in Cash

For homeowners who wish to maximize their savings, paying in cash is the optimal way to go. After all, by buying a residential solar system outright, you're essentially paying in advance for 25 to 30 years of electricity to use in your home. This means your energy rates are locked in for decades, and you don't have to worry about inflation or rising utility costs.

The big problem with paying in cash is that the upfront cost of solar equipment tends to be fairly high. Even when you take into account tax incentives and rebates, you're looking at an investment of at least $10,000 to $15,000. This isn't going to be feasible for every homeowner.

Solar Financing Through Loans

Another option is to borrow money from a solar lender, using it to finance your solar installation, then paying it back over time. The most common types of solar loans include unsecured personal loans, home equity loans or lines of credit, and in-house financing through your solar panel installation company.

If you choose a loan as your solar financing route, pay special attention to interest rates and loan terms. How much you pay in interest and your repayment period will often increase the overall cost of your renewable energy system. However, rest assured that homeowners who finance their systems with a loan are still eligible for the federal solar investment tax credit, which may make it a bit easier to pay off that loan.

Some states and local governments have low-interest loan programs for clean energy systems that homeowners can take advantage of. If you're interested in paying for a solar installation via a loan, make sure you research state or municipal programs that are available to you.

Leasing Solar Panels

Homeowners may also choose to either lease their solar panels or participate in a power purchase agreement (PPA), through which you buy the electricity the panels on your roof are producing.

Solar leases and PPAs are pretty similar, but with one significant difference: A solar lease means you're making fixed monthly payments to use solar panels and other solar equipment, whereas a PPA means you're making monthly payments simply for the electricity produced by solar panels. Naturally, the amount of electricity may fluctuate quite a bit from month to month.

Solar leases can seem attractive at first, but for most homeowners, they don't make much financial sense. One reason for this is that homeowners in PPAs or leases are not eligible for the federal solar tax credit. Another thing to note is that solar leases don't enhance your property values, which can be one of the big financial incentives of a residential solar system. Other financing options will allow you to save a lot more money in the long run.

Saving Money on Solar Power

While the initial solar investment can be steep, there are options available to homeowners who wish to save money on their solar installation.

  • Federal solar tax credit: Currently, installing a solar system qualifies you for a tax credit that's worth 26% of the total equipment and installation cost. (This number is set to decline in the coming years, so to take full advantage of it, act soon.)
  • Local utility rebates: Many municipal utility companies offer rebates to homeowners who go solar. Research your local utility providers to learn more.
  • Net metering: Also see if there is a net metering program available in your area. Net metering gives you the opportunity to funnel any surplus energy you generate back into the electrical grid, in exchange for a credit from your utility company.
  • Shopping around: Finally, remember that not all solar installers are created equal. Shop around and compare quotes to ensure you're getting the best value.

To start with a free, no-obligation quote from a top solar company near you, fill out our 30-second form below.

Which Solar Financing Option is Right for You?

Ultimately, the way you choose to pay for your solar panel system will depend on a number of factors, including your expendable income, your credit score and ability to get a good loan rate, and more.

Here's a breakdown of which type of solar panel financing may be right for which homeowners:

Solar Financing Option Who it May Be Right For
Cash payment
  • Homeowners who really want to maximize their savings
  • Homeowners who have enough tax liability to take advantage of the federal credit
  • Homeowners with enough cash liquidity to pay for their solar installation outright
Solar loan
  • Homeowners who don't have the funds to buy a solar system outright, but still want to reduce their electric bills as much as possible
  • Homeowners who want to be eligible for all rebates and tax incentives
Solar lease or PPA
  • Homeowners who don't want to deal with system maintenance
  • Homeowners who are ineligible for tax credits

Frequently Asked Questions: Solar Financing

What is the best way to finance solar?

If you have the funds, paying in cash is the most advantageous way to finance solar. For those without the funds, a solar loan is usually the best way to go. For most homeowners, leasing doesn't make as much financial sense.

Is financing available for solar?

Yes, there are plenty of ways to finance solar panels. Banks, credit unions and even some solar installers offer their own lines of credit, specifically to be used for installing solar equipment.

Is it smart to finance solar panels?

For those without the funds to buy solar equipment outright, financing solar panels can be a flexible and affordable way to lower monthly utility bills and reduce environmental impact.

Are solar loans worth it?

Taking out a solar loan delays your break-even point, but it still lets you cut your electric bills and enhance your property value. For many homeowners, solar loans are well worth it.

Can you rent solar panels?

Yes, leasing solar panels is an option. However, for most homeowners, it is not financially prudent to do so.

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