Solar Financing: How Should You Pay For Solar Panels?

We'll walk you through cash payments, solar loans and solar leases.

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Solar panel investment, 3D illustration

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So, you’ve identified the best solar company and the best solar panels for your home; now comes the hard part: deciding on a solar financing plan. One of the biggest obstacles to making the switch is the cost of solar, but thankfully, there are a number of ways for homeowners to pay that require little to no money down even if you can’t afford a large initial payment.

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.

Don’t know how much you’ll need to finance? To find out more about the cost of solar for your home and receive a free, no-obligation quote, fill out the form below or use this tool to get connected with a solar installer in your area.

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Most Common Solar Financing Options

When installing solar panels, there are generally three ways homeowners pay for their systems: cash, loan or lease.

1. Paying for Solar Panels in Cash

Paying for solar in cash maximizes your long-term savings. Sticker shock can be common, but keep in mind that by buying a residential solar system outright, you’re essentially paying for about 25 years of electricity in advance.

Cash purchases provide a number of benefits — primarily protection from rising utility costs, inflation and interest — which can save you thousands in the long run and help you accurately and reliably budget household or business expenses years in advance.

The downside of paying cash is obvious: The upfront cost of solar equipment tends to be significant. Even after you take into account incentives like federal tax credits and rebates, you’re looking at an investment of at least $10,000 to $20,000. This isn’t going to be feasible for every homeowner.

2. Solar Financing Through Loans

For homeowners who can’t (or prefer not to) spend this much money upfront, solar loans let you borrow money from a lender to fund your installation, and you can pay it back over time with your energy savings. 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 installation company.

The key benefit of a solar loan is that it allows borrowers more flexibility with their budgets while still maintaining the benefits of system ownership — mainly being able to claim the federal solar investment tax credit, which can be used to pay off a sizable portion of the loan soon after installation.

Some solar-friendly states and local governments have low-interest loan programs for clean energy systems or energy efficiency upgrades that you can take advantage of, such as Property Assessed Clean Energy (PACE) loans.

If you choose a loan as your solar financing route, pay special attention to your annual percentage rate (APR), down payment amount, whether it’s an adjustable or fixed rate, origination fees and loan payment terms. Interest rates and fees will be a main determinant of your solar payback period and the aggregate amount of money you spend on your installation.

If you’re interested in paying for a solar installation via a loan, make sure you research all low-interest financing options available to you. A little research can save you a lot of money in the long run.

3. Leasing Solar Panels

You may also choose to lease your solar panels or participate in a power purchase agreement (PPA), through which you can buy the electricity the panels on your roof are producing. The solar company you lease through will retain ownership of the panels, letting the company cash in on the solar tax credit.

Solar leases and PPAs are pretty similar, but there’s one significant difference: a solar lease entails fixed monthly payments to use solar panels and other solar equipment, whereas in a PPA, you make monthly payments simply for the electricity produced by the panels. Leases are more common through larger solar companies like Sunrun and SunPower.

The convenience of a solar lease can seem attractive at first, but for most homeowners, it doesn’t make as much financial sense. Without system ownership, you won’t be eligible for the solar tax credit, and the solar on your home won’t enhance your property value.

In fact, leases can even make moving or selling a home more difficult, as you either have to transfer your lease (and pay to move your panels) or convince the new homeowner to assume it (which is hardly guaranteed).

Chart with projected lifetime savings of cash purchase of solar panels, solar loan or solar lease

EcoWatch

Is Owning a System Better Than Leasing?

Purchasing a system either in cash or with a loan is what we refer to as system ownership, and it provides a number of key financial benefits. Though leases are still a great way to more simply cut your energy impact, choosing a lease will mean missing out on the following:

  • Eligibility for the federal solar tax credit: Currently, purchasing a solar system qualifies you for a tax credit that’s worth 26% of the total equipment and installation cost of your system. (This number is set to decline in the coming years, so to take full advantage of it, act soon.)
  • Eligibility for local utility rebates: Many municipal utility companies offer rebates to homeowners who go solar. Research your utility provider to learn more.
  • Sales and property tax exemptions: Most states offer exemptions on sales and property taxes for qualifying solar equipment.
  • Property value addition: Solar increases your property value, but only if you own the system.

Think about it this way: one way or another, someone will have to purchase the panels that go on your home. This may be you or it may be your solar company. You may not know this, but some solar companies prefer when you choose a lease, because it means that they get to own the panels and reap the financial benefits, even if the panels are on your home.

Which Solar Financing Option is Right for You?

Ultimately, the best way to finance your solar power system will depend on a number of factors, including your expendable income, your credit score, your ability to get a good loan rate and more.

Here’s a breakdown of which type of solar panel financing is generally best for which homeowners:

Solar Financing Option

Who it May Be Right For

Cash payment

  • Homeowners who want maximum savings
  • Homeowners who have enough tax liability to take advantage of the federal credit
  • Homeowners with enough cash to pay for their solar installation outright

Solar loan

  • Homeowners who don’t have the funds to buy a solar system outright (or don’t want to) but still want the benefits of system ownership
  • 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 with low credit scores
  • Homeowners who are ineligible for tax credits
  • Homeowners who care more about helping the environment with solar and less about saving money

Costs of Solar Financing

The costs associated with solar financing will depend mostly on the interest rate you’re able to secure from your lender. Here are a few tips to keep your rates as low as possible when financing a solar panel system:

  • Shop around: Spend some time shopping around and comparing rates and offers from various lenders. Most sources will give you a free quote that’s valid for a few days while you survey other offers. Have a plan before you start getting quotes.
  • Have someone co-sign: Have a family member or close friend with excellent credit? Having a co-signer on your loan can make a lender far more likely to give you a better interest rate.
  • Raise your credit score: The higher your credit score, the better your interest rate will be. Even small adjustments to your credit score can alter what interest rates are available to you, sometimes saving you thousands in the long run.

To start comparing free quotes and financing options from solar companies in your area, you can use this tool or fill out the form below.

Frequently Asked Questions: Solar Financing

What is the best way to finance solar?

If you have the funds, paying in cash will maximize your long-term savings. For those without the necessary cash flow, a solar loan will make the most sense. Leases, for the most part, are still guaranteed to save you money, but they come with fewer benefits and less flexibility.

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. A few solar-friendly states offer loan programs to help their residents enjoy the benefits of solar. Loan terms will vary depending on where you’re located. Visit the DSIRE database to browse incentives available to you.

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. We recommend avoiding financing solar panels if you plan to move soon after your solar installation, however. Transferring a loan can be tricky.

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 and offer much more upside than leasing a solar system.

Can you rent solar panels?

Yes, leasing solar panels is still a great option for homeowners who wish to quickly cut their dependence on non-renewable energy. However, for most homeowners, it is not financially prudent to do so.

Karsten Neumeister is a writer and renewable energy specialist with a background in writing and the humanities. Before joining EcoWatch, Karsten worked in the energy sector of New Orleans, focusing on renewable energy policy and technology. A lover of music and the outdoors, Karsten might be found rock climbing, canoeing or writing songs when away from the workplace.

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