Solar Panel Financing Options (2024)
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Transitioning to solar power is expensive, with buyers frequently paying over $20,000 for their solar system according to our survey of 1,000 homeowners. Based on the same survey, for 20% of homeowners, affordability is the most important factor when it comes to choosing a solar provider. Fortunately, financing options such as solar loans, and power purchase agreements can make solar more affordable. There are many solar myths that may make solar investment seem questionable, but the right company and payment option can reduce your up-front costs, maximize your savings, and improve your return on investment. We’ve compared the most common solar panel financing options, their benefits, and the best solar companies for each payment choice.
Key Takeaways
- Different financing options may be available to you depending on your state and what solar company you choose.
- In order to benefit from many government solar tax incentives, you must choose a financing option where you own the solar panels, rather than lease them.
- Be sure to research any solar company you are considering to avoid solar scams.
How To Finance Solar Panels
Most solar companies offer two or more financing options. We’ll review the most common financing options and their advantages and disadvantages.
Solar Panel Leases
Solar leases allow homeowners to rent their systems directly from a solar company. Based on your credit score, you may qualify for little to no down payment. Customers commit to long-term leases and pay fixed monthly rates. According to the U.S. Department of Energy, solar leases typically last 20–25 years. The solar company will handle all system maintenance and repairs. Solar leases are best for homeowners who don’t qualify for loans, can’t afford a large up-front cash payment, or aren’t interested in owning their system.
Unfortunately, selecting a solar lease disqualifies you from money-saving incentives, since the solar company legally owns the system. This payment option offers little financial benefit to homeowners since the rented system doesn’t increase your home value. You’ll also need good credit to qualify for a solar leasing program.
If you plan to sell your home with a rented system, you’ll need to either pay off the remainder of your lease or find a qualified buyer to take it over. Depending on the number of years remaining, ending the lease may require a sizable payment. You could also face issues with a transfer if the potential buyer doesn’t qualify for the lease. In our survey of around 1,000 homeowners, 12% leased their solar system.
Pros and Cons of Solar Panel Leases
Pros
- Places maintenance responsibilities and costs on the solar company
- Has a fixed monthly rate
- Requires little to no up-front investment
Cons
- Doesn’t boost your property value
- Disqualifies you from solar incentives and rebates
- Requires a lease buyout or transfer to sell your home
Recommended Solar Company
Sunrun offers both monthly and prepaid solar leasing options. A monthly solar lease allows homeowners to rent their system for little to $0 down. You’ll make monthly payments to “rent” the system. Alternatively, you can prepay the entire lease amount upfront. Either way, your lease covers all system maintenance and repairs plus insurance protection for panel damage or theft.
Power Purchase Agreements (PPAs)
PPAs are a type of solar lease. Instead of paying to rent the system, you pay for each kilowatt-hour (kWh) of energy you use. These rates are lower than other financing options, including solar leases or loans. Your contracts will outline your expected rate, which will be lower than the utility rate of electricity. Most solar providers also include system maintenance and repairs with PPAs.
Availability is one of the major drawbacks of PPAs. As of 2023, at least 29 states plus Washington, D.C. and Puerto Rico have authorized the use of PPAs for their residents. However, several of these states restrict PPAs to certain system sizes or customer types. Six states have banned PPAs, and the status of PPAs is unclear in the remaining 15 states.
Unlike other solar leases, PPA payments aren’t fixed. These agreements typically include a price escalator clause stating that the price of electricity will go up each year, and your monthly bill will vary based on your energy use. As a result, your costs may be higher or lower than predicted. Additionally, you’ll need to use energy from the grid if your solar panels don’t generate enough power to run your home. This means you could have two monthly electric bills, one for the PPA and one for the electric company.
PPAs also offer no financial benefits or property value increases, and they disqualify you from many solar incentives, such as federal tax credits.
In our survey of 1,000 homeowners, 10% of respondents acquired their solar panels through a PPA.
Pros and Cons of PPAs
Pros
- Doesn’t require any upfront costs
- Offers the lowest monthly payment of any financing option
- Allows you to pay only for the energy used, not the system itself
- Requires no commitment to own your panels
Cons
- Availability limited to 29 states
- Disqualifies you from solar incentives, credits, and rebates
- Provides no financial benefits or return on investment
Recommended Solar Company
Momentum Solar offers PPAs for its solar systems. It includes solar and workmanship warranties as well as system maintenance and monitoring. However, given the limited benefits of PPAs, we recommend selecting one of Momentum’s other financing options, which include cash payments, loans, and leases.
Solar Panel Loans
Solar loans allow you to own your solar system without putting in a significant up-front investment. Instead, you make monthly loan payments over a fixed period. With solar loans, you are the legal owner of your solar system, so you can lower your overall costs with available solar incentives, such as federal tax credits, or state tax property tax exemptions. Owning your panels also means fewer problems transferring ownership of your solar system during a home sale, and you’ll benefit from a boost in property value.
On the other hand, solar loans will increase how much borrowers pay in total due to the annual percentage rate (APR). Even with solar incentives, your total installation costs will be higher depending on your loan amount, loan terms, and loan rate. It’s important to review the full details of your solar loan with your lender—including the origination fee, APR, and repayment term—before signing. You’ll need an excellent credit score to qualify for the best loans with low-interest rates. You may want to speak with multiple lenders and solar companies to identify the best loan options.
In our survey of 1,000 homeowners, 25.6% of respondents took out a loan to pay for their solar panels.
Pros and Cons of Solar Panel Loans
Pros
- Increases your home’s property value
- Grants you legal ownership of your system
- Requires little to no money down
- Qualifies you for solar incentives and rebates
Cons
- Increases your total investment due to interest rates
- May require collateral, depending on the type of loan
- Requires an excellent credit score for the best loan terms
Recommended Solar Company
Blue Raven Solar offers in-house solar loans through its BluePower Plus+ program. New customers qualify for 18 months of free solar energy. After this initial period, you’ll move to a monthly payment program with fixed monthly payments and interest rates for five years.
Home Equity Line of Credit (HELOC)
A Home Equity Line of Credit, or HELOC, is when you borrow money against your home’s equity. These lines of credit are capped at a percentage of your total equity and have variable interest rates depending on your situation. Typically, HELOCs have a spending limit of 80% of your total equity. Some banks or credit unions may allow for higher spending limits in exchange for higher interest rates.
If you are unable to secure a low interest solar loan, a HELOC can be a good choice. You should be careful when choosing this option, as your home is the collateral. Defaulting on a HELOC can put you at risk of foreclosure.
Pros and Cons of HELOCs
Pros
- Can have lower interest rates compared to solar loans
- Qualifies you for solar incentives and rebates
- Interest may be tax deductible
Cons
- Interest rates are variable
- Your home is the collateral for the credit
What Factors Impact Solar Panel Costs?
Homeowners considering solar should prepare for a significant financial investment. While solar panel costs vary in different areas of the country, your total cost will depend on your chosen solar company, system size, and home energy needs. States in the Northwest and Midwest tend to see the highest costs, while sunnier states in the southern and western parts of the country benefit from lower prices.
Available tax incentives and solar panel quality will also impact your panel costs. Here’s an overview of common factors that influence costs:
- Labor: Labor costs vary among solar companies but account for a significant portion of your total price. Large, complicated solar systems are more expensive to install.
- Location: Solar panel costs vary from state to state and depend on local solar prices, electricity rates, and available tax incentives. Some states are friendlier to solar than others. Location can also impact your sun number score.
- Mounting option: Ground-mounted solar panels tend to cost more than rooftop solar panels. You’ll also pay more for upgrades like dual-axis tracking.
- Panel quality: The most recommended residential solar panels are more efficient and produce more energy for your home, but they’re also more expensive. The best regarded cheap solar panels will reduce your initial investment but won’t generate as much long-term savings.
- Solar panel type: Monocrystalline panels are the most efficient but most expensive panels. Polycrystalline panels are more affordable but require more panels to produce enough energy to power your home.
- Solar tax incentives: Federal, state, and local solar tax incentives help reduce solar costs, making the transition more affordable for homeowners.
- System size: Your system size and how many solar panels you need will depend on your home’s energy needs. You’ll need a bigger and more expensive system if you need more power for your home.
How Solar Tax Incentives Reduce Cost
Solar incentives, credits, and rebates are offered at the federal, state, and local level. These reduce your total installation costs, helping you maximize saving. They also shorten your payback period, or the time it takes for your energy savings to equal the amount you invested in your solar system. This can take 6–10 years and varies on your total system costs and selected financing option.
The federal solar tax credit provides a tax reduction equal to 30% of your solar panel installation costs. Some states also offer solar tax credits you can apply to your state taxes. Additional solar incentives include city-specific rebates, credits, and property and sales tax exemption laws. Homeowners should check the Database of State Incentives for Renewables and Efficiency (DSIRE) for an up-to-date list of available solar incentives in their area.
- You must legally own your solar energy system to qualify for these incentives. Only two financing options grant you ownership: cash payments and solar loans. Other financing options, such as solar leases and power purchase agreements (PPAs), keep ownership with the solar company.
Solar Panel Scams
The Better Business Bureau has warned consumers of “free solar panel” scams. If someone contacts you offering to install solar panels for free—or for a suspiciously low cost—be wary. These scammers often use high-pressure sales tactics and ask for an upfront payment, which they promise will be reimbursed by a government program. Alternatively, they may ask for personal information they can later use for identity theft or financial fraud, such as your social security number or banking details.
The best way to avoid scams is to educate yourself. Research solar companies in your area, average solar panel costs, and current state and federal incentives. Rather than giving into high-pressure sales tactics, take the time to gather bids from multiple companies. Ask lots of questions and compare each company’s answers, pricing, and online reviews to spot frauds.
For more information about solar panel scams and how to avoid them, check out the video below with home technology expert Ross Trethewey. Ross and host Kevin O’Connor also discuss situations where solar panels may not be a worthwhile investment and how to vet solar installers.
Cash Purchase
Lump sum cash payments offer the best return on investment and long-term savings. Customers pay for their system outright with cash, a check, debit card, or a credit card. This payment option eliminates interest rates (other than whatever your credit card company charges), credit checks, and loan fees.
Cash payments offer a quicker return on investment and provide the maximum long-term savings. Since you legally own your system, you’ll qualify for any solar incentives and credits available. You can easily transfer your system in a home sale.
Although you’ll pay off your system immediately, you’ll need a hefty sum for a cash purchase. You’re also responsible for your system’s upkeep and maintenance. Some maintenance will be covered by warranties, but once those contracts end, you’ll have to pay for any additional repairs or upgrades. You’ll need an up-to-date, well-maintained system for any potential home sales.
Pros and Cons of Cash Purchases
Pros
- Offers the maximum long-term savings and return on investment
- Provides the lowest payback period
- Doesn’t require a credit check or loan fee
- Qualifies you for solar credits, incentives, and rebates
Cons
- Involves a significant cash or credit card payment
- May require out-of-pocket expenses for system upgrades
- Places maintenance responsibilities on the homeowner
How Solar Installation Works
Converting to renewable energy helps you save money on your monthly electric bills and reduces your carbon footprint. Before scheduling an installation, it’s essential to understand what’s involved. Watch our video below to better understand the steps of a solar panel installation.
Our Conclusion
Of the various solar panel financing options, cash payments offer the best return on investment and shortest payback period. They also qualify you for solar incentives that help offset installation costs. However, solar loans are a good alternative if you don’t have the funds available for an outright payment. You’ll enjoy clean energy and benefit from available incentives and a property value boost while spacing out your payments over time.
Homeowners can also choose a solar lease or PPA. However, these financing options offer far fewer benefits and don’t qualify you for solar incentives.
FAQ About Solar Financing Options
Do solar panels increase my property value?
Yes, solar panels do increase your property value. Those savings can also increase your home’s resale value. Zillow found that homes with solar panels sell for 4% higher than comparable non-solar homes.
Is it better to pay outright or finance solar panels?
Paying for a system outright offers the best long-term benefits. You’ll avoid loan fees, interest rates, and credit checks, allowing you to save more long-term.
What are the benefits of solar panel financing?
Solar panel financing helps make the transition to solar energy more affordable. Solar loans allow homeowners to pay for their solar system over several years instead of paying a hefty out-of-pocket sum at the start.
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