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Solar Loans 101: How to Get Low Interest Rates

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Businessman Using Calculator By Model Home With Solar Panel On Wooden Table
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Many homeowners can benefit from installing solar panels, harnessing the sun's energy to help reduce or even eliminate their dependence on traditional utilities. Although solar panels can be expensive, solar loans make residential systems more accessible to homeowners.

Indeed, if you live in an area that gets consistent year-round exposure to the sun, solar panels can be an effective way to lower your home's energy costs while minimizing your environmental footprint. The biggest obstacle to solar adoption is the initial cost of solar panels.

All in, solar panel installation costs typically range from $10,000 to $35,000. In this article, we'll explain how solar loans can make that initial investment much easier to handle.

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.

Solar Loan Basics

So, how do solar loans work, exactly? Well, they're similar to home improvement loans, or any other type of purchase loan: They enable you to buy a residential solar system and pay it off over time.

There are plenty of solar loan options to choose from. For example, to finance solar panels, you can typically choose from any of the following:

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

For the most part, the terms and conditions of solar loans mimic those of any other standard loan. Specifically:

  • Getting 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.
  • Loans are available in a wide array of interest rates, term lengths, loan amounts, credit requirements, etc.

An important thing to note is that homeowners who finance their solar energy systems with a loan are still eligible for the federal solar tax credit. This gives you a credit worth 26% of your total solar installation costs.

How to Choose the Right Solar Loan

As you seek the best solar loan for your situation, there are a number of factors to keep in mind. These include:

  • 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 a payment on the solar panels. Generally, larger down payments will mean lower interest rates and a more affordable 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 get a secured solar loan or an unsecured solar loan. Here's what homeowners should know about these two options:

  • 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 their 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 have any collateral or security provisions for the lender. They represent a greater risk on the lender's part, and thus usually come with higher interest rates and less favorable terms.

Ultimately, the decision about which type of loan to seek comes down to this question: Do you have enough equity in your home to take out a secured loan? If so, and if you are willing to use some of that home equity to pay for solar panels, then a secured loan may be the smarter choice overall.

How to Get Low Interest Rates for Solar Loans

In addition to choosing the right type of loan, there are other steps you can take to keep your interest rates manageable when you finance 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 someone co-sign: Having a co-signer on your solar loan — especially one with excellent credit — creates extra assurances for the lender and will usually result in more favorable rates.
  • Improve your credit score: There are several ways to improve your credit score to get a lower interest rate on a solar loan. For example, you can pay down old debts and credit card balances, be on time with monthly bill payments, and ensure you don't open any new credit cards as you apply for your solar loan.

Also be aware that there are things you can do to pay less over time other than getting a lower interest rate. Examples include choosing a shorter repayment period, looking for discounts like paperless or auto-pay discounts, avoiding loans with high fees and, if applicable, making a more substantial down payment.

Local Solar Loan Programs

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 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 loan programs for homeowners interested in solar. 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 municipalities and local utility companies may offer low-interest solar loans. We recommend researching your specific area before turning to banks or credit institutions.

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. Some of the best places to check include:

  • Credit unions
  • Lending institutions
  • In-house financing through your solar installer (which will come from a third-party solar lender)

Again, it's crucial to shop around and compare rates 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 fill out the form below.

Frequently Asked Questions: Solar Loans

Are solar loans worth it?

There are various factors to consider as you decide whether getting a solar loan is worth it. Solar loans help you increase the value of your property, lower utility bills, minimize your impact on the environment and potentially claim some tax incentives. Then again, financing does decrease your overall savings, and extends the break-even point for your residential solar system.

Do banks do solar loans?

Some banks do offer solar loans, though often with interest rates that exceed what you'd pay elsewhere. It may be worth checking with your local bank, but always remember to shop around and compare.

What is the best way to finance solar?

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

What type of loan is a solar panel loan?

Solar panel loans are generally considered to be a type of personal loan, similar to a home improvement loan.

Can you buy a solar battery with a solar loan?

Most often the answer is yes, but make sure you double-check the terms of your loan.

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