Solar Financing Options for Homeowners to Consider

February 11 2021

Residential solar panels paid for with a solar loan

Solar financing makes it easy for anyone to take advantage of the benefits of solar energy. While solar panels are a great long-term financial investment, they do require a significant upfront cost. This can turn off many homeowners, preventing them from saving money.

Luckily, solar financing options are available to help make panels more affordable. In addition, solar tax incentives cut the initial price down significantly. All of these things make residential solar more accessible to a wider variety of homeowners.

Learn more about solar financing and find out which option is best for you. Here’s everything you need to know about solar loans, solar leases, and power purchase agreements.

Solar Loan

A solar loan works like any other home improvement loan. The homeowner borrows money from a lender, then pays it back over time, plus interest, in the form of monthly installments.

There is one notable difference between these loans and other home improvement loans: you get to reap the financial benefits of your loaned asset while you’re paying it off! Your panels will generate significant savings even while you pay for them over time with solar panel financing.

When selecting a loan type you have two main options: secured and unsecured. A secured solar loan requires an asset that will serve as collateral for the loan. Typically, this asset is your home. Unsecured loans do not require collateral (other than the solar system itself).

Since unsecured loans are a higher risk for the lender, they are typically more expensive. If you want more financial savings over time, choose a secured solar loan.

Another thing to consider when selecting a loan is the interest rate and length. Solar loans with longer terms may have smaller monthly payments, but you’ll pay more over time. On the other hand, a shorter-term loan will cost more monthly but has better long-term value.

Here are some additional things to think about when considering a solar loan:

  • Buying your system outright makes you eligible for the federal investment tax credit. You won’t get these savings when financing. However, you may still be able to take advantage of tax savings. Interest on many secured solar loans is tax-deductible. That means you could cash in some additional savings on your income taxes.
  • Certain states offer subsidized solar energy loans with below-market interest rates. A qualified solar installer will be able to tell you specific options for your location.
  • If your monthly electric bill savings are greater than your loan’s monthly payment, you’ll still be saving money, even while you pay off your system.

Solar Lease

Opting for a solar lease is almost like renting your solar system. The homeowner enters an agreement with a solar leasing company entitling them to the benefits of the system for the term of the contract.

In other words, you’ll pay a monthly fee to use solar electricity from the panels for the duration of the solar lease, which is typically 20 years. Since the leasing company owns the panels, they’re entitled to any rebates or tax breaks offered by the state or federal government.

When selecting a solar lease, you’ll typically choose between $0-down, prepaid, and custom down payment options.

Here are some things to think about if you’re considering a solar lease:

  • A solar lease or PPA will save you 10 to 30 percent each month over your utility's bills. On the other hand, a solar loan will save you 40 to 70 percent. However, a solar lease requires no upfront investment. Keep this in mind when considering solar financing. 
  • The third-party owner is responsible for any necessary maintenance on the panels.
  • At the end of the lease, the third-party owner will either remove the panels or sell the system to you at fair market value. If you move before your lease is up, you can transfer the remainder of your lease to the buyer or buy the system yourself and include it in the property value.

PPA (Power Purchase Agreement)

A PPA, or power purchase agreement, is very similar to a solar lease. The difference is that with a lease, you pay a fixed monthly payment, almost like rent. However, with a PPA, you agree to purchase the power generated by the system at a set per-kWh price.

If the third party owner takes advantage of tax incentives, it may indirectly benefit the homeowner by resulting in even lower electricity rates.

Home solar panels owned by a third party under a solar lease

Solar Panel Financing

Solar panel financing is a great option for homeowners who don’t want to tackle the high upfront cost of solar installation. There are many places to take advantage of solar financing besides traditional banks. For instance, solar panel manufacturers, credit unions, national lending institutions, public-private partnerships, municipalities, and utilities all offer financing options.

If you’re ready to reap the benefits of home solar panels, Greenlife Solar can help. Use our free online service to find affordable solar installation in your area.

We’ll send you free price quotes on all your options to get you started. Then, compare your options with no obligation. Get an idea of what is out there. Search solar installation companies today.

Compare Quotes From Solar Installers in Your Area.