Solar Financing: How Should You Pay For Solar Panels?

Solar panel investment, 3D illustration
Written by Publishing Team

So, you have selected the best solar company and the best solar panels for your home; Now comes the hard part: deciding on a solar financing plan. The cost of solar power is one of the biggest barriers to making the switch, but fortunately, there are a number of ways homeowners can pay that require little or no money even if you can’t afford a large down payment.

In this article, we will be detailing the ways to finance solar energy including paying with cash, getting a loan and renting solar panels. Read on to find out which one might be the best option for you.

Disclaimer: This article is for informational purposes only. It should not be relied upon and is not intended to provide accounting, legal or tax advice.

Don’t know how much you will need for financing? To find out more about the cost of solar energy for your home and get a free, no-obligation quote, fill out the form below or use this tool to contact a solar installer in your area.

Most Popular Solar Financing Options

When installing solar panels, there are generally three ways homeowners pay for their systems: cash, loan, or rent.

1. Pay for solar panels with cash

Paying for solar energy with cash increases your savings in the long run. Sticker shock can be common, but keep in mind that by purchasing an all-residential solar system, you are essentially paying for approximately 25 years of electricity up front.

Cash purchases offer a number of benefits—mainly protection against rising utility costs, inflation, and interest—that can save you thousands in the long run and help you budget accurately and reliably for home or business expenses years in advance.

The downside to paying cash is obvious: the initial cost of solar equipment tends to be significant. Even after you factor in incentives like tax credits and federal tax cuts, you’re looking at an investment of at least $10,000 to $20,000. This will not be possible for every homeowner.

2. Solar energy financing through loans

For homeowners who can’t (or would rather not) spend that much money up front, solar loans allow you to borrow money from a lender to finance your installation, and you can pay it back over time with your energy savings. The most common types of solar loans include unsecured personal loans, home purchase loans or lines of credit, and in-house financing through your solar installation company.

The main advantage of a solar loan is that it allows borrowers more flexibility with their budgets while maintaining the benefits of system ownership—essentially the ability to claim the Federal Solar Investment Tax Credit, which can be used to pay off a large portion of the loan soon after installation.

Some solar-friendly states and local governments have low-interest loan programs for clean energy systems or energy efficiency upgrades that you can take advantage of, such as the Clean Energy Loans (PACE).

If you choose a loan as a way to finance solar energy, pay special attention to the annual percentage rate (APR), the amount of the down payment, whether it is an adjustable or fixed rate, construction fees and loan repayment terms. The interest rates and fees will be the main determinant of the solar payback period and the total amount of money you spend on the installation.

If you are interested in paying for a solar installation with a loan, be sure to research all the low-interest financing options available to you. A little research can save you a lot of money in the long run.

3. Rental of solar panels

You can also choose to rent solar panels or participate in a Power Purchase Agreement (PPA), in which you can purchase the electricity produced by the panels on your roof. The solar company you rent it through will retain ownership of the panels, allowing the company to take advantage of the solar tax credit.

Solar leases and PPAs are very similar, but there is one important difference: a solar lease requires fixed monthly payments for the use of solar panels and other solar equipment, whereas in a power purchase agreement, you simply make monthly payments for the electricity produced by the panels. Leases are more common through large solar companies such as Sunrun and SunPower.

The convenience of a solar lease may seem attractive at first, but for most homeowners, it doesn’t have as much financial importance. Without system ownership, you will not qualify for the solar tax credit, and the solar energy in your home will not enhance the value of your property.

In fact, leases can make moving or selling a home more difficult, since you either have to transfer the lease (and pay to move the panels) or convince the new homeowner to afford it (which isn’t guaranteed).

Chart with expected lifetime savings from cash purchase of solar panels, solar loan or solar rental


Is owning a system better than renting?

Buying a system either with cash or with a loan is what we refer to as system ownership, and it provides a number of major financial benefits. While leases are still a great way to reduce your energy impact more simply, choosing a lease will mean missing out on:

  • Eligibility for the Federal Solar Tax Credit: Currently, the purchase of a solar system entitles you to a tax credit equal to 26% of the total equipment and installation cost of your system. (This number is set to decline in the coming years, so to take full advantage of it, move soon.)
  • Eligibility for local utility discounts: Many municipal utility companies offer rebates to homeowners who are turning to solar energy. Find your utility provider to find out more.
  • Exemptions from sales and property tax: Most states offer sales and property tax credits to qualify solar equipment.
  • Adding property value: Solar power increases the value of your property, but only if you own the system.

Think of it this way: One way or another, someone is going to have to buy the panels you have in your house. It could be you or your solar company. You may not know this, but some solar companies Help yourself When you choose a lease, it means it that they Get the panels and reap the financial benefits, even if the panels are in your home.

What is the right solar financing option for you?

Ultimately, the best way to finance your solar system will depend on a number of factors, including your consumer income, your credit score, your ability to get a good loan rate and more.

Here’s a breakdown of which type of solar panel financing is generally best for homeowners:

Solar financing option

For whom it may be suitable

Pay in cash

  • Homeowners who want maximum savings
  • Homeowners with enough tax liability to take advantage of the Federal Credit
  • Homeowners have enough cash to pay for their solar installation directly

solar loan

  • Homeowners who don’t have the funds to purchase a full solar system (or don’t want to) but still want the benefits of system ownership
  • Homeowners who want to be eligible for all tax rebates and incentives

Solar Lease or Power Purchase Agreement (PPA)

  • Homeowners who don’t want to deal with system maintenance
  • Homeowners with low credit scores
  • Homeowners not eligible for tax credits
  • Homeowners who care more about helping the environment with solar energy and less on saving money

Solar financing costs

The costs associated with solar financing will mostly depend on the interest rate you can secure from your lender. Here are some tips for keeping your prices as low as possible when financing a solar panel system:

  • Shop around: Spend some time shopping and comparing rates and offers from different lenders. Most sources will give you a free quote that is valid for a few days while you scan other offers. Make a plan before you start getting quotes.
  • Ask someone to sign: Do you have a family member or close friend with excellent credit? Having a co-signer on your loan can increase the likelihood that the lender will give you a better interest rate.
  • Raise your credit score: The higher your credit score, the better your interest rate. Even small adjustments to your credit score can change the interest rates available to you, sometimes saving you thousands in the long run.

To start comparing free quotes and financing options from solar companies in your area, you can use this tool or fill out the form below.

Frequently Asked Questions: Solar Financing

What is the best way to finance solar energy?

If you have the funds, paying with cash will increase your long-term savings. For those who do not have the necessary cash flow, a solar loan will make more sense. Leases are still mostly guaranteed to save you money, but they come with fewer benefits and less flexibility.

Is financing available for solar energy?

Yes, there are many ways to finance solar panels. Banks, credit unions, and even some solar installers offer their own lines of credit to be used specifically for installing solar equipment. Some solar friendly countries offer loan programs to help their residents enjoy the benefits of solar energy. Loan terms vary depending on where you live. Visit the DSIRE database to browse the incentives available to you.

Is it smart to finance solar panels?

For those without funds to purchase solar equipment directly, financing solar panels can be a flexible and affordable way to lower monthly utility bills and reduce environmental impact. We recommend avoiding solar panel financing if you plan to relocate soon after solar installation. Transferring a loan can be complicated.

Are Solar Loans Worth It?

Getting a solar loan delays your break-even point, but it still lets you lower your electric bills and improve the value of your property. For many homeowners, solar loans are well worth it and offer far more advantages than leasing a solar system.

Can you rent solar panels?

Yes, renting solar panels is still a great option for homeowners who want to quickly reduce their dependence on non-renewable energy. However, for most homeowners, it is not financially wise to do so.

Carsten Neumeister Writer and specialist in renewable energy with a background in writing and the humanities. Prior to joining EcoWatch, Karsten worked in the energy sector in New Orleans, focusing on renewable energy policy and technology. A fan of music and the outdoors, Karsten can be found rocking, kayaking, or writing songs when he’s away from the workplace.

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