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Solar Loans Guide: Rates, Borrowing Tips & More (2022)

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Businessman Using Calculator By Model Home With Solar Panel On Wooden Table
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When designed and installed properly, solar panels are one of the best investments you can make in 2022. However, there is a significant upfront cost — between $15,000 and $25,000, according to the Center for Sustainable Energy — so many homeowners turn to solar loans to finance this expense.

We certainly understand why many homeowners can't afford to drop north of $15,000 in cash to purchase solar panels. Solar borrowing exist to provide convenient, affordable and often flexible options for a customer evaluating whether solar panels are worth it for their house.

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.

In this article, we'll explain how solar borrowing works and how to choose the best financing option for your investment. If you are still researching how much a solar system would cost for your home, you can use this tool or fill out the form below to get a free quote from a pre-screened installer near you.

Solar Loan Basics

So, how do solar loans work, exactly? In essence, they operate in the same way as any typical loan for a home or car would: After selecting a provider and solar panel type to install, you take out the loan to purchase a solar energy system and repay the borrowed money over time. The energy savings provided by the solar panel system, plus the federal solar tax credit, can be used to pay back that loan plus a bit of interest.

The typical solar loan payback period ranges between five and 10 years, allowing a borrower to enjoy over a decade of free renewable energy generated by their system after paying it off.

Solar lending comes in many different forms and can finance 100% of the cost of a solar installation. Many loan providers offer low monthly payments or zero-money-down options depending on your situation. Here are the most common types of loans:

  • An unsecured personal loan
  • A home equity loan or line of credit
  • In-house solar financing through your solar installation company

For the most part, the terms and conditions of solar borrowing reflect those of any other standard loan. More specifically:

  • Securing a lower interest rate means having a lower overall cost to borrow.
  • A shorter loan term generally means higher monthly loan payments but a lower overall cost to borrow.
  • The loans available to you will vary in interest rates, term lengths, loan amounts, credit requirements, etc.

Overall, solar loans provide a wonderful opportunity for customers to enjoy the perks of system ownership without having to spend an uncomfortable amount of money upfront. Though the overall value loans provide is slightly lower than a cash purchase, the overall savings are significantly greater than a solar lease (as pictured below).

projected lifetime savings graph from cash purchase, solar loan and solar lease over 25 years

Which Is Better: Solar Loan or Solar Lease? What's the Difference?

Loans and leases are very different, starting with the ownership of the solar panels themselves. When you lease a solar energy system, your solar provider retains ownership. This allows your provider to enjoy the benefits of ownership, namely, cashing in on the federal tax credit.

Leasing solar equipment can also complicate selling a home, and getting out of a solar lease comes with hefty cancellation fees. In our experience, most solar horror stories result from unethical solar companies pushing leases on unassuming customers under the guise of "free solar panels." Customers can end up trapped in a bad contract with no way out. Don't let that scare you off of a solar lease, however, if that's what you can afford. Just be sure to do your research.

Though solar leases can save customers money and lower their reliance on fossil fuels, the long-term value of a solar lease is far lesser than the long-term benefits of system ownership. When you cover your solar energy system cost with a loan, you can still enjoy the following:

  • A return on investment (ROI) via energy savings
  • Value added to your property from solar
  • Money back via the federal solar tax credit

Local tax incentives for system ownership, including property and sales tax exemptions

How to Choose the Right Solar Loan

There are a number of factors to keep in mind when considering the best solar loan for your needs, including:

  • Monthly payment amount: If you end up choosing a shorter loan term (i.e., a loan that you must pay off in a shorter amount of time), your monthly payments will probably be higher. The overall cost of the loan will be lower, but it's nevertheless important to consider the impact on your household budget.
  • Down payment amount: Depending on the loan you choose, you may or may not be required to put down an initial payment on the solar panels. Generally, larger down payments will mean lower interest rates and a more valuable loan overall.
  • Fees: Some solar lenders may charge prepayment penalties or monthly fees in addition to your monthly principal and interest payments. Always make sure you get fee information upfront, so as to ensure there are no surprises on your loan statement.

Secured Vs. Unsecured Solar Loans

Another important factor to consider is whether you'll want a secured loan or an unsecured loan. Let's break it down:

  • Secured loans are usually connected to some piece of collateral, such as a piece of equity in your house; this provides the lender with some protection. If you fail to make your payments, the lender can claim this piece of collateral. Because the lender has some insurance, secured loans usually offer lower interest rates and more favorable terms overall.
  • Unsecured loans do not offer any collateral or security provisions to the lender. They represent a greater risk on the lender's part, and therefore come with higher interest rates and less flexibility.

A secured loan is generally the smarter choice when possible. However, if you don't have enough equity in your home (or aren't in a place to risk it), an unsecured loan may be the wiser decision.

Solar Panel Loan Rates: How Do I Find the Best Rate?

Confident you know the best type of loan for your situation? Now comes securing the lowest interest rate possible. Most solar loan interest rates, such as those from lender LightStream, range from 3.99% to 16.99%. But it is possible to get lower rates.

Here are a few tips to keep your rates as low as possible when financing a solar panel system:

  • Shop around: It's usually best not to go with the very first lender you find. Spend some time shopping around and comparing rates. Most lenders will give you a free quote that's good for a number of days while you compare offers from other companies. Have a plan before you start getting quotes.
  • Have someone co-sign: Having a co-signer on your loan — especially one with excellent credit — makes a lender far more likely to lower your interest rate.
  • Improve your credit score: The higher your credit score, the lower your interest rate will be. Small changes to your credit score before getting a quote can save you thousands in the long run. Here are a few tips to do so:
    • Pay back any old debts and credit card balances
    • Confirm your revolving credit limit is at its maximum
    • Be sure not to miss any monthly bill payments
    • Don't open any new credit cards near or during the process of applying for a solar loan

Local Solar Loan Programs

Given the undeniable environmental and financial benefits of solar energy efficiency, federal and local government bodies often launch programs to help make solar financing more feasible for their residents.

Homeowners who are interested in going solar should also know about Property Assessed Clean Energy (PACE) loan programs. According to the Department of Energy, PACE programs "allow a property owner to finance the up-front cost of solar energy or other eligible improvements on a property and then pay the costs back over time through a voluntary assessment." What makes these programs unique is that the assessment is tied to the property itself, not to the individual.

PACE financing legislation exists in some form in 36 states plus Washington D.C. A handful of states have separate solar loan programs and rebates for homeowners. Here are some current programs worth knowing about:

State

Solar Loan Program

Maximum Loan Amount

Interest Rate

Longest Repayment Term

Connecticut

Energy Conservation Loan Program

$25,000

0% to 7%

12 years

Louisiana

Home Energy Loan Program (HELP)

$6,000

2%

5 years

Michigan

Michigan Saves Home Energy Financing

$50,000

4.44% to 7.90%

15 years

North Carolina

State-regulated municipal loan options

Varies

Up to 8%

20 years

Ohio

Energy Conservation for Ohioans (ECO-Link) Program

$50,000

3% APR reduction on bank loans

7 years

Additionally, certain cities, municipalities and even utility companies may offer low-interest solar loans. We recommend researching your specific area before turning to banks or credit institutions. The DSIRE database is a helpful resource.

Where to Get a Solar Loan

If your state doesn't have its own solar energy loan program or you're not eligible for enrollment, there are plenty of other places to get solar loans. Any of the best solar companies will be sure to assist you in finding a loan partner, but some other places to check include:

  • Credit unions
  • Lending institutions
  • In-house financing options through your solar installer

Some installers use a third-party solar lender, but some, such as Blue Raven Solar, offer innovative financing directly.

We can't emphasize enough the importance of shopping around and comparing rates and offers before deciding on which solar lender is the best fit for your needs. To get started with a free quote and find solar loan information from a top solar company in your area, you can use this tool or fill out the form below

Frequently Asked Questions: Solar Loans

Are solar loans worth it?

As is so often the answer with questions related to solar energy, it depends. Solar loans help you increase the value of your property, lower electric bills, minimize your impact on the environment and claim some tax incentives. However, paying for your solar panel installation upfront with cash offers the best return on investment.

What is the interest rate on solar loans?

Rates for most loan types are between 3.99%-16.99% but will vary depending on location, credit score, loan lender and more. Remember to always shop around and check your local government, utility company and solar installers to ensure you find the lowest interest rate possible.

What is the best way to finance solar?

If you have sufficient home equity, a secured loan is often the most cost-effective approach. If you don't have sufficient home equity, an unsecured loan can work just fine.

Can you buy a solar battery with a solar loan?

Typically, yes, you can buy a solar battery with a solar loan. But make sure you double-check the terms of your loan.

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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