- Solar loans help households who cannot afford the upfront costs of buying solar panels outright to still install solar panels and cash in on tax rebates and financial incentives
- However with the cost of solar panels plummeting in the last few years, many households can now afford the upfront costs of solar panels
- To compare prices of solar installers in your state, enter your zip code in the form above
If you’re relying on traditional utilities, your electric bill isn’t getting any lower.
The cost to extract and process fossil fuels is climbing, and those fuels are growing scarcer. Then, too, the power grid is shockingly fragile, as rolling blackouts and natural disasters all too often remind us.
Against this background, it’s no wonder that more and more people are turning to solar power. Solar also benefits from generous tax breaks, credits, rebates and incentives available from the local level all the way up to the Federal level.
However the initial cost of buying solar panels upfront rules many households out of going solar. The good news is there are now many options to finance residential solar panels.
Solar loans are popular as they allow households to install solar at their home and cash in on the tax breaks and other incentives available. The monthly repayments of the loan used to finance the purchase of the panels is typically much lower than the financial gains made by going solar.
As with any loan, it is important that you take your time to fully work out how much the repayments will be and what your savings from going solar will be.
Solar Loans vs. Buying
A standard solar power system (panels, wiring, batteries, controller, inverter and installation) costs between $7 and $9 per watt. That brings the cost of a common 5kW system to an estimated $35,000.
For some customers, purchasing outright — paying the entirety as a lump sum — is an option. For many of us, however, a loan is necessary to make that kind of purchase possible.
It’s worth bearing in mind that you may not need to borrow the entire amount needed for a PV system. If you’ve already got cash on hand — a significant tax refund, or money left over from a home equity loan or remodel — you may only need to borrow enough to make up the difference.
With credits, incentives, and net metering — where your excess power is bought back by your utility company — it’s possible to further defray costs while also shortening your repayment period (read more about the incentives for solar power here).
Alternatives to Solar Loans
Solar service providers offer solar power in the same way that a cable company offers cable, phone and internet. They own the equipment, and you have the option of either leasing that equipment or just paying for what it delivers.
The provider, in turn, takes advantage of SRECs (solar renewable energy credits), tax credits, sales and use tax exemptions and net metering. They are all still available, but it’s the PPA or lease issuer that will receive those benefits. However, the homeowner does not have to worry about taking out a loan, buying the system, or maintaining it over its service life.
Solar Loans vs Solar Lease
Like an automotive lease, a solar lease typically has a fixed term (commonly 15 to 20 years), and allows for the purchase of the PV system at the end of the lease term. Unlike a car lease, however, a solar lease will often increase in cost year-over-year. One advantage to leasing and PPAs alike is that homeowners will see savings more quickly than they would if they were making payments on a loan for solar. Read more about solar leasing here.
Solar Loans vs PPA
A Power Purchase Agreement, more commonly known as a PPA, can be an option for those not wishing to take on a loan or the responsibilities that come with ownership of a PV system.
With a PPA, a third-party company owns the system, reaps the financial benefits, sells off any excess power generated at peak times, and sells the electricity generated by the solar system on your home back to you, usually at a lower rate than your local utility company. Read more about PPAs here.
Who Offers Solar Loans?
Solar loans may be either secured or unsecured. In the former instance, the homeowner is collateralizing the loan; in the latter case, no collateral is required.
There are dozens of lenders and loan options available. Solar panel manufacturers often offer direct loans. Banks, credit unions, and mortgage companies make loans available both for new construction and for the remodel and refit of an existing structure.
Local, state and Federal government loans are also on offer, usually through public/private partnerships where the government or an agency acts as a loan guarantor. Even utilities have gotten into the act, since the loans they offer can help them to meet renewable energy portfolio requirements.
Advantages and Disadvantages of Solar Loans
There are some clear advantages to solar loans. One is not being required to have a large amount of cash on hand to get started (or, if you do have it, to spend it all at once). The loan allows you to take advantage of tax benefits that would normally go to a third party. Your mortgage may be favorably adjusted for energy efficiency. And a PV system that’s not encumbered by a lease or PPA can be a tremendous advantage in selling your home.
There is one relative disadvantage to solar loans: the interest accrued on a loan raises the price of a solar system and can make it take longer to realize savings or profit. There are other factors that can vary widely from one situation to the next. Customers with less-than-optimal credit will have to pay higher interest rates. Not all loans and incentives will be available in all areas.
While solar power is less expensive than it’s ever been, and continues to drop in price, it still isn’t cheap to get started. A solar loan can bridge the gap between the money you have and the money you need, while still allowing you to take advantage of the multitude of financial and environmental perks that come with solar power.