Solar Financing: What Are My Payment Options?

Solar is an expensive investment, but it can pay off in the long run. With the cost of electricity increasing, solar panels have the potential to save families a lot of money.

To make solar panels affordable for any household, solar companies offer a variety of solar financing options.

Before deciding which financing option is right for your unique situation, it would be helpful to know how much solar panels would cost for your home. Get a quote from a top-rated solar company in your area or calculate it for yourself.

If you can afford to pay upfront for your solar array, solar companies offer a cash purchase option. However, if it is more financially feasible to pay for the solar panels over time, you can look into securing a solar loan. If you are not interested in owning the solar panels but would like a cheaper monthly bill and to positively impact the environment, a solar lease or PPA (Power Purchase Agreement) might be the best way to go.

A cash purchase involves the homeowner paying the entire price of the solar panels upfront.

One of the biggest benefits of purchasing a solar system upfront is that you own it. This means that you will receive incentives and rebates from the federal and state governments, including the 30% solar Investment Tax Credit.

Because you own the entire solar array, the value of your home increases. If you were to sell your home in the future, the value of the solar panels would be factored into the resale price.

As electricity rates increase over time, the cash purchase completely avoids repercussions. Essentially, you pay for your electricity for the next 25 years (the lifetime of a solar panel), saving any money you would have spent on an increase in electricity rates.

Most people that install solar panels on their home hope to cover 100% of their electricity needs. In this ideal scenario, purchasing the system upfront would eliminate any future utility bills. Even in the case that solar panels cover less than the full amount of electricity needed, the utility bill would be less than before.

When looking at the price tag, it may seem that a cash purchase is the most expensive option, but it is actually the cheapest option. No interest is accrued with a cash purchase, so it is cheaper than paying off a loan. The solar savings and tax incentives from owning the solar panels right away make a cash purchase cheaper than a lease or a PPA as well.

Purchasing upfront means paying for the solar system all at once. You may be in a situation financially where paying multiple small monthly payments is more feasible than a one-time expense, which is why there are a few other options available.

Another option to consider is getting a solar loan, which can be a personal loan or a home equity loan. Because home equity financing requires using your home as collateral and has long repayment terms, we will be focusing on the personal loan option.

A solar loan is the other option that allows you to own the solar panels, which comes with many benefits, like increasing the value of your home and receiving tax incentives.

Unlike the cash purchase option, a personal solar loan does not require a large upfront payment. For those who cannot afford a large expense but want to own their solar panels, a solar loan is a great alternative to a cash purchase.

Depending on your lender, a personal loan is much more flexible to your unique situation as well.

According to NerdWallet, repayment terms for a personal loan are between two and seven years. Some may think this repayment plan is a downside, but compared to a solar lease or a PPA, this is a very short repayment period. Because it won’t take too long to repay the loan, the savings from solar will start relatively soon.

Rates for personal loans are based on your credit score and current debt, so if you are in a good place financially and could secure a low interest rate, this could be a great option for you.

If you do not have a good credit score or are in a lot of debt, you may only be offered loans with high interest rates, making this a more expensive option.

If you cannot afford the upfront purchase and cannot qualify for a low interest rate on a loan, you may want to consider a solar lease or a PPA.

A solar company installs solar panels on your home, and you pay them a monthly rate.

Homeowners with a solar lease pay the solar company a fixed monthly payment, whereas those with a PPA pay the solar company for the energy generated by the solar panels at a per kilowatt rate.

There is no expensive upfront fee, so you can enjoy the environmental benefits of solar power without a large purchase.

The monthly rate paid to the solar company is less than what you used to pay your power company, so you will be saving some money.

In both the case of a solar lease and a PPA, a third party owns the solar panels installed on your home. Unfortunately, this means that you cannot qualify for any tax credits.

According to the Office of Energy Efficiency & Renewable Energy, a solar lease typically lasts between 20 and 25 years. If you decide to move within this term, the lease or the PPA will need to be transferred to the new homeowner.

A solar lease is a fixed monthly rate, which can prove expensive at different times of the year. When your solar panels aren’t producing much electricity during winter months, you’ll still be paying the same price as when they were producing a lot of electricity during the summer.

With a PPA, the homeowner pays the solar company based on the energy generated by the solar panels. This is less expensive than paying the utility company, but because electricity rates fluctuate, many PPAs increase their rate each year. Be sure to read the contract before signing a PPA to understand if their rates will change.

If your solar panels are unable to cover 100% of your energy needs, you will still need to draw electricity from the power grid. In the case of a loan or a cash purchase, this is just one small monthly bill, but in the case of a lease or a PPA, this is another bill on top of the monthly bill already paid to the solar company.

While many solar companies offer multiple or all of these payment options, there are some companies who developed their own types of payment options.

For example, Blue Raven Solar has created their own financing program called BluePower Plus+. This unique option combines the benefits of a cash purchase and a loan:

• Homeowners own the solar panels.
• Homeowners can claim incentives and tax credits.
• Solar power is free for the first 18 months.
• After 18 months, a fixed monthly payment and interest rate is applied.
• Homeowners can pay off their loan at any time.

When conducting your research on different solar companies, be sure to look into the payment plans they offer. Maybe they have their own option that works better for your situation.

1. Do I want to own my solar panels?

Owning your solar panels allows you to claim tax credits and incentives, which can significantly decrease the cost. It can also increase the value of your home. So, do you want to own your solar panels?

If the answer is yes, you will need to choose between an upfront cash purchase or a solar loan. If the answer is no, a solar lease or a PPA is right for you.

2. Can I afford to pay the entire cost upfront?

If you can afford it, we highly recommend the cash purchase option. Purchasing the solar system upfront ends up being the cheapest option because interest is not factored into the cost.

However, if it is easier on your wallet to make smaller monthly payments, a solar loan might be the better option for you.

3. Do you have a good credit score?

Interest rates on solar loans are determined by your credit score and debt amount. If you have a good credit score and no debt, you will most likely be able to secure a loan with a low interest rate, in which case a solar loan is a good option for you.

If you can’t afford a cash purchase and you don’t have a good credit score, you should consider a solar lease or PPA.