Guide

Solar Loans Guide: Rates, Borrowing Tips & More (2022)

Solar Loans Guide: Rates, Borrowing Tips & More (2022)
Written by Publishing Team

When designed and installed correctly, solar panels are one of the best investments you can make in 2022. However, there is a significant upfront cost—between $15,000 and $25,000, according to the Center for Sustainable Energy—so many homeowners turn to loans Solar energy finance these expenditures.

We certainly understand why many homeowners are unable to part with $15,000 in cash to purchase solar panels. The solar metaphor exists to provide convenient, affordable, and often flexible options for the customer to assess whether solar panels are worth it for their home.

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.

In this article, we will explain how solar energy borrowing works and how to choose the best financing option for your investment. If you are still looking for the cost of a solar system for your home, you can use this tool or fill out the form below to get a free quote from a pre-vetted installer near you.

Solar Loan Basics

So how exactly do solar loans work? In essence, it works the same way as any typical home or car loan: after choosing a provider and the type of solar panel to install, you take out the loan to purchase a solar system and pay back the borrowed money over time. The energy savings provided by the solar panel system, plus the federal solar tax credit, can be used to pay off this loan plus a little interest.

The typical repayment period of a solar loan is between five and 10 years, allowing the borrower to enjoy more than a decade of free renewable energy generated by their system after it is repaid.

Solar lending comes in various forms and can finance 100% of the cost of a solar installation. Many loan providers offer low monthly installments or cashless options depending on your situation. Here are the most common types of loans:

  • that Personal loan without collateral
  • a home equity loan or credit limit
  • Internal financing for solar energy Through your own solar installation company

For the most part, the terms and conditions of solar borrowing mirror those of any other standard loan. More specifically:

  • Locking in a lower interest rate means a lower total cost of borrowing.
  • A shorter loan term generally means higher monthly loan payments but a lower overall cost of borrowing.
  • The loans available to you will vary in interest rates, term duration, loan amounts, credit requirements, etc.

Overall, solar loans provide a great opportunity for customers to enjoy the benefits of system ownership without having to spend an uncomfortable amount of money up front. Although the total value of the loans offered is slightly less than a cash purchase, the total savings is much greater than a solar lease (shown below).

Graph of expected lifetime savings from cash purchase, solar loan and solar lease over 25 years

Which is better: a solar loan or a solar lease? What is the difference?

Loans and rents vary greatly, starting with the ownership of the solar panels themselves. When you rent a solar system, your solar provider retains ownership. This allows your provider to enjoy the benefits of ownership, i.e. take advantage of the federal tax credit.

Renting solar equipment can also complicate the sale of a home, and exiting a solar lease comes with hefty cancellation fees. In our experience, most solar horror stories result from unethical solar companies paying leases to mediocre customers under the guise of “free solar panels”. Customers trapped in a bad contract can end up with no way out. Don’t let that scare you off a solar lease, however, if that’s what you can afford. Just be sure to do your research.

Although solar leases can save customers money and reduce their dependence on fossil fuels, the long-term value of a solar lease is much less than the long-term benefits of system ownership. When you cover the cost of your solar power system with a loan, you can still enjoy:

  • Return on investment (ROI) by saving energy
  • Added value to your property from solar energy
  • Refunds with the Federal Solar Tax Credit

Local tax incentives for system ownership, including property and sales tax exemptions

How to choose the right solar loan

There are a number of factors to consider when considering the best solar loan for your needs, including:

  • Monthly Payment Amount: If you end up choosing a shorter loan term (i.e. a loan that you have to repay in a shorter period of time), your monthly payments will likely be higher. The total cost of the loan will be lower, but it is nevertheless important to consider the impact on your household budget.
  • Amount paid in advance: Depending on the loan you choose, you may or may not be required to make a down payment on the solar panels. In general, larger down payments will mean lower interest rates and an overall more valuable loan.
  • Outlay: Some solar lenders may charge a prepayment penalty or a monthly fee in addition to your monthly principal payments and interest. Always make sure you have fee information up front, to ensure there are no surprises on your loan statement.

safe vs. Unsecured Solar Loans

Another important factor to consider is whether you want a secured loan or an unsecured loan. Let’s break it down:

  • secured loans It is usually tied to some collateral, such as a portion of the principal in your home; This provides the lender with some protection. If you fail to make your payments, the lender can claim that piece of collateral. Because the lender has some insurance, secured loans usually offer lower interest rates and generally more favorable terms.
  • Unsecured Loans It does not provide any guarantees or security provisions to the lender. It represents more risk on the part of the lender and thus comes with higher interest rates and less flexibility.

A secured loan is generally the smartest option when possible. However, if you don’t have enough equity in your home (or aren’t in a position to risk it), a wiser decision may be to take out an unsecured loan.

Solar Panel Loan Rates: How do I find the best rate?

Are you confident that you know the best type of loan for your situation? Now comes the insurance of the lowest possible interest rate. Most interest rates on solar loans, such as those of lender LightStream, range from 3.99% to 16.99%. But it is possible to get lower rates.

Here are some tips for keeping your prices as low as possible when financing a solar panel system:

  • Shop around: It is usually best not to go with the first lender you find. Spend some time shopping and comparing prices. Most lenders will give you a free quote that is good for a number of days while comparing offers from other companies. Make a plan before you start getting quotes.
  • Ask someone to sign: Having a co-signer on your loan — especially one with excellent credit — makes the lender more likely to lower your interest rate.
  • Improve your credit score: The higher your credit score, the lower your interest rate. Small changes to your credit score before getting a quote can save you thousands in the long run. Here are some tips for doing that:
    • Pay off old debts and credit card balances
    • Ensure that your revolving credit limit is at the maximum
    • Make sure not to miss any monthly bill payments
    • Do not open any new credit cards near or during the process of applying for a solar loan

Domestic Solar Loan Programs

Given the undeniable environmental and financial benefits of solar energy efficiency, federal and local government agencies often launch programs to help make solar financing more feasible for their residents.

Homeowners interested in transitioning to solar energy should know about the Clean Energy Loan Programs (PACE). According to the Department of Energy, PACE programs “allow a property owner to fund the initial cost of solar or other eligible improvements to the property and then repay the costs over time through a voluntary appraisal.” What makes these programs unique is that the appraisal is related to the property itself, not to the individual.

PACE funding legislation exists in some form in 36 states plus Washington, DC. A few states have separate solar loan programs and discounts for homeowners. Here are some current programs worth knowing about:

state

Solar Loan Program

Maximum loan amount

Interest rate

Longest repayment period

Connecticut

Energy Conservation Loan Program

$25,000

0% to 7%

12 years

Louisiana

Home Energy Loan Program (HELP)

6000 dollars

2%

5 years

Michigan

Michigan Provides Home Energy Finance

$50,000

4.44% to 7.90%

15 years

North Carolina

Municipal loan options regulated by the state

Differs

up to 8%

20 years

Ohio

Ohio Energy Conservation Program (ECO-Link)

$50,000

3% annual percentage reduction for bank loans

7 years

In addition, some cities, municipalities, and even utility companies may offer low-interest loans for solar energy. We recommend researching your specific area before turning to banks or credit institutions. The DSIRE database is a useful resource.

Where to get a solar loan

If your state does not have its own solar loan program or if you are not eligible to register, there are plenty of other places to get solar loans. Any of the best solar companies will help you find a loan partner, but some other places to check include:

  • credit unions
  • Lending Institutions
  • Internal financing options through your solar park

Some installers use an external solar lender, but others, such as Blue Raven Solar, offer innovative financing directly.

We cannot stress enough the importance of shopping and comparing prices and offers before deciding which solar lender is best suited to your needs. To get started with a free quote and find solar loan information from the largest solar company in your area, you can use this tool or fill out the form below

Frequently Asked Questions: Solar Loans

Are Solar Loans Worth It?

As is often the case answering questions about solar energy, it depends. Solar loans help you increase the value of your property, lower your electricity bills, reduce your impact on the environment and claim some tax incentives. However, paying for the installation of solar panels up front in cash provides the best return on investment.

What is the interest rate for solar energy loans?

Rates for most types of loans range from 3.99%-16.99% but will vary by location, credit score, loan lender, and more. Remember to always shop and check with your local government, utility company, and solar installers to make sure you find the lowest interest rate possible.

What is the best way to finance solar energy?

If you have enough real estate equity, a secured loan is often the most cost-effective approach. If you do not have enough equity, an unsecured loan can work well.

Can you buy a solar battery with a solar loan?

Usually, yes, you can buy a solar battery with a solar loan. But be sure to re-check the terms of your loan.

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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