Solar Financing Options

Purchase with Cash

If you have the money, purchasing a solar system outright is the best option. However, purchasing outright is the best option for buying a car and a home, too, but let’s be honest, it’s not feasible for most people. But, if you have it, it’s a great choice. 

Solar Loan

Getting a loan is an excellent option for funding your solar panel system. You can go to your bank or financial institution, or find a solar installer in your area that provides access to lenders.

As always, with any loan, including personal loans, make sure that you have a fair interest rate. Average solar loans have an APR of between 3-8% depending on your credit score. 

Types of Solar Loans

• Secured Solar loans/Home Equity Line of Credit (HELOC)
  In such a loan, the lender keeps the interest rate low by taking advantage of your home’s equity. With a good credit score and home equity, you may be able to get a rate below 5%, which would translate to low solar loan payments. Often, the interest paid on a secured solar loan is tax-deductible.

• Unsecured Solar loans
  These solar loans do not have any collateral backing, so interest rates are usually higher with shorter loan terms. The interest is not tax-deductible. However, unsecured loans are easier to get, as you need “good enough credit,” which usually means a minimum FICO score of 650. Some companies also offer additional perks, like an extended warranty on solar installation with unsecured loans.

• Property Assessed Clean Energy (PACE) Program
  PACE is another popular option in solar PV financing and is available in several states. Offered to homeowners by the local government, the amount loaned is attached to the property instead of to the individual borrower. The borrower then makes the repayment through increased taxes on the property.

  PACE loans are pretty easy to qualify for since you can usually get one with low credit scores. However, you’ll need to have a consistent record of making your mortgage payments.

  These loans also offer up to 100% financing, and the loan repayment is transferred to the new owner whenever the property is sold. This solar financing option is particularly helpful for homeowners who want to install solar panels but do not have spare cash.

Loans are one of the most popular means of solar financing since you can get your system at zero or low upfront costs. Another benefit of solar panel loans is that you can start saving almost immediately, as the monthly payment is generally about the same or lower than your usual energy bill. In several states, residential loan programs for solar are also offered by state agencies listed on DSIRE.

Leasing Solar Panels

In some areas, lease arrangements are available. A lease offers financial convenience, sparing the homeowner up-front installation costs. Solar leases have helped many a homeowner shift to a renewable electricity source, and ensure a stable monthly electric bill for years to come.

In a lease arrangement, the solar lease company will handle all aspects of the planning and installation — but often keep all local and federal tax incentives. The homeowner will, therefore, miss out on the tax benefits that come with buying.

And a leasing company is not going to regard the aesthetics of a home the way its occupants do. People who are interested in the leasing option should examine the precise final placement plans and know the number of solar panels the company is going to place on the roof before signing a contract.

Through escalation clauses, the monthly payments in many solar lease contracts go up by 3% each year. Given that many leasers are working with a twenty-year contract, this is another aspect of leasing that severely limits the home occupant’s savings and maximizes profit for the leasing company. The homeowner may have the option to buy the solar panels later, at a discounted price, which may or may not be worth it, considering all the extra payments you would accrue over the years.

If the homeowner decides to sell their home during the course of the contract, the company will typically ask the homeowner to buy out the solar lease. This could mean facing what amounts to an early payment penalty.

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Power Purchase Agreement (PPA)

A PPA is basically a third-party ownership agreement in which a solar finance company purchases, installs, and maintains a system on your property. The homeowner pays no or a low upfront cost and buys energy generated by the solar installation on a decided per-kilowatt-hour rate. Ideally, this rate will be lower than your usual retail energy rate, giving you immediate cash savings.

The contract term of PPAs is usually 10-25 years. During this period, the homeowner does not need to maintain or repair the system. At the end of the term, you can choose to get an extension, ask the company to remove the solar panel system, or purchase the system outright.