Solar Financing

If you’d like to add solar panels to your home, then you already know that doing so can be very expensive. If you want to purchase a solar energy system outright solar panels can cost between $15,000 and $25,000 to do so. This doesn't include the potential price of equipment for solar battery storage.

However, paying cash for a residential solar system isn’t your only option. There are several solar panel financing options that can enable you to begin installing your solar panels right away without having to spend a lot of cash upfront to do so.

In this article, we’ll provide a comprehensive look at your solar power financing options with the goal of helping you make the right decision for your financial needs. Keep reading to learn more.

How does solar panel financing work?

Solar financing options, such as leases, loans, and PPAs, enable homeowners to begin enjoying the benefits of a residential solar system without having to pay the full price of one upfront.

In order to qualify for solar panel financing, you often need to have a solid credit score (650+ to qualify for the most options). But you may not need to have any cash available to put down on the panels upfront. The specific amount that you need will vary from provider to provider.

The major solar financing options

There are three primary ways that you can pay for solar panels. In this section, we will provide an overview of what each entails.

Cash

If your goal is to save as much money on your electricity bill as possible, then paying for your system with cash is your best option. When you buy a solar system with cash, you are essentially paying for future electricity upfront. This protects you from rate increases, which optimizes your savings.

For example, imagine that you would spend $50,000 on electricity over the next 25 years. You could spend between $20,000 and $30,000 on a solar system today and potentially cover all of your electricity costs over that timespan. This would result in a net financial gain of between $20,000 and $30,000.

Paying for your solar panels outright will also give you full access to any tax incentives that you qualify for, reducing the net price of the system. Additionally, if you own your panels and go to sell your home, you can generally expect it to be worth about 3-4% more than it would be without the panels.

Solar loan

If you don’t have access to all of the upfront cash that you need to buy a solar system outright, you might look into getting a solar loan. Solar loans enable you to install solar panels and start benefitting from them much faster than you would be able to if you had to wait until you had enough cash to buy the panels outright.

The best part is, your monthly payment for a solar loan will often be either lower than or equal to your current electricity bill. This means you can essentially add solar panels to your roof without having to pay a dime more than what you’re paying right now.

Solar loans are similar to purchasing a system with cash in many ways since you will eventually own your panels outright with this option as well. That means the value of your home will increase and you can expect to gain access to all of the financial incentives that are available to you.

Solar leases and PPAs

Solar leases and power purchase agreements (PPAs) are ways that you can enjoy some of the benefits of solar power without having to own a system yourself.

Under this model, you sign an agreement with a solar installer to have a system outfitted to your roof. Then you agree to buy the power that the system produces from the installer for a predetermined rate.

Generally, leases and PPAs last about 20 - 30 years. They often offer rates that are about 10-20% lower than your current electricity bill. But your rates will escalate over time to account for inflation.

The major difference with these solar financing options is that you never actually own your solar energy system if you use one. That means the value of your home won’t likely go up and you won’t get access to any financial incentives for adding solar panels to your roof.

That being said, you also won’t be responsible for maintaining the panels. If something goes wrong with the system during your lease, it will be the installer’s job to repair it.

Is cash, a solar loan, or a solar lease right for you?

All three of the major solar financing options can be good options for specific types of people. The choice that’s right for you will depend on your unique considerations while shopping for solar panels.

Here’s a look at what might cause you to choose each of the three solar financing options.

Buy your solar panels with cash if:

• You want to maximize your savings from investing in solar
• You have $20,000 - $30,000 in cash to spend on a solar energy system
• Your tax situation will allow you to take full advantage of the solar investment tax credit

Buy your solar panels with a loan if:

• You want to own the panels eventually but can’t, or don’t want to pay for them upfront
• You’d like to be eligible to receive all state and federal tax incentives for investing in solar
• You don’t mind being responsible for maintaining and repairing your system

Add solar panels to your home with a lease or PPA if:

• You don’t want to have to worry about maintaining or repairing your solar panels
• You don’t want to have to spend any cash upfront
• You don’t care about solar tax incentives or increasing your home’s value by 3-4%

Picking the right solar financing option for your goals

Choosing the right solar financing option can feel daunting when you first look into them. However, the decision-making process for most people will be quite similar. Let’s review what that looks like.

First, you need to make a decision about whether you’d like to eventually own your solar panels outright or not.

People who own their solar panels often do better with their solar investment over the lifespan of the system. But owners also have to assume responsibility for maintaining and repairing their solar panels if something happens to them.

Choosing not to own your solar panels is a better idea if you really don’t want to have to worry about maintaining or repairing them. That being said, with this option, you will still save money on your energy bill but you won’t save as much as you could if you owned the panels outright.

Once you’ve answered this question, you’ve narrowed your solar financing options considerably. If you want to own your system, then you will either need to pay cash for it or take out a solar loan. Which of these options is right for you will depend on how much cash you’re willing to pay upfront.

If you want to lease your system, then you can either sign a solar lease or a solar PPA. Either option will save you about the same 10-30% on your monthly energy charges.

Things to consider while looking at solar loan options

If you decide that taking out a solar loan is your best strategy, then there are several factors to consider before signing any agreements. Here’s a look at those and why they matter.

Secured vs Unsecured

The difference between secured and unsecured loans is that secured loans are backed by a valuable asset (like your home) and unsecured loans aren’t. You can typically get a better rate on a secured loan since the company that’s financing you has the value of your asset to fall back on if you default.

For example, the average rate for a secured loan is between 3-8%. But an unsecured solar loan can range anywhere from 5.5% to 20% depending on a variety of personal creditworthiness factors.

Down payment Requirements

There are tons of solar payment loan options that don’t require any down payments. These can be a great way to start enjoying solar power without having to put up any cash upfront.

However, keep in mind, the more money that you put down on a solar loan, the quicker you will be able to pay it off. That means fewer interest payments and a faster solar payback period.

Consumers will want to balance the appeal of zero money down versus the cost-saving benefits of putting down a sizeable amount of cash while taking out a solar loan.

Loan Length

There are also lots of options to consider when it comes to loan length. You can typically find options that are as short as three years or as long as 30 years. That being said, most people opt for solar loans that last for 10-20 years.

The general rule when it comes to loan length is this: the longer your loan, the lower your interest rate will be. That’s because you end up paying the interest rate for more years with a longer loan.

The opposite is also true. If you take out a short, three-year solar loan, your interest rate on that loan will likely be on the higher end.

Tax incentives and solar financing

Tax incentives are another important thing to keep in mind while thinking about solar financing. You will only be able to qualify for tax incentives like the federal solar investment credit if you choose a financing option that ends with you owning your solar system outright.

In other words, you will only get to claim solar tax incentives if you pay for your system with cash or take out a loan to pay for it.

Solar panel loans: key information

• You can get a solar panel loan with $0 upfront
• To qualify for a solar panel loan, you need to have at least a 550 credit score
• Solar panel loans are just one type of loan you can use to pay for panels
• Loans enable you to begin saving money immediately
• Lots of institutions offer solar loans, including banks, utility companies, and solar providers

How does a solar loan work, exactly?

Solar loans are no different than any other type of personal or home loan. Companies that offer solar loans give homeowners the upfront cash they need to buy solar panels. In exchange for this, the consumer agrees to make monthly payments with interest.

For example, a financing company might give you $15,000 to purchase a solar system for your home with a 5% interest rate. You might sign an agreement to pay that loan off over 10 years with monthly payments.

Are solar panel loans better than other loan options?

Solar panel loans aren’t the only type of loan that you can take out if you want to add a solar system to your home. There are two other primary options that you may want to consider as well.

Home equity loans and HELOCs

Home equity loans allow you to borrow against the equity that you’ve built up in your home. These work essentially the same as personal solar loans in that both have fixed monthly payments and interest rates.

However, your interest rate with a home equity loan may be lower than with a personal solar loan since your home is acting as collateral.

HELOCs also use your home as collateral. But they tend to have variable interest rates. This adds some uncertainty to the amount that you’ll have to pay to finish the loan. You could end up paying more or less than a personal solar loan with a HELOC.

FHA and Fannie Mae loans

These two options are designed to provide cash to people who want to buy a home and upgrade it at the same time. You might use one of them if you’d like to add solar panels to a new home that you’re buying.

One of the benefits of these options is that they tend to allow a higher loan-to-value ratio. That means it could be easier for you to qualify for an FHA or Fannie Mae loan than it would be to qualify for a personal solar loan.

Which option is right for you?

All three of these loan options can be a viable way to add solar panels to your home. The specific option that’s best for you will depend on your unique circumstances.

For example, personal solar loans are a great choice for buyers who want the funds quickly and who have solid credit scores.

Home equity loans and HELOCs are great for people who have built up significant equity in their homes and who want to get the best interest rate on their solar purchase.

FHA and Fannie Mae Loans are best for new homeowners who are looking to add solar panels to their property at the same time they purchase their house.

Where can I get a loan for a solar system?

There are tons of institutions that will provide you with a loan for a solar system. You can get one from banks, utility companies, and even solar manufacturers themselves.

As you begin looking for solar loans, you’ll see that there is quite a bit of variability in the offers that you’ll receive.

For example, loan interest rates can range from as low as 4.49% to as high as 25+%. The minimum credit score needed to qualify for a solar loan will also change from provider to provider. And the amount of cash that you need to put down upfront could fluctuate as well.

This variability means that you’ll want to make sure you’re doing your research and comparing all of your options before signing any agreements to make sure you get the best deal.

That being said, here are five of the most trusted providers of solar loans today:

• LightStream
• Upgrade
• LendingClub
• SoFi
• Discover

Overview of solar leasing and solar PPAs

Solar leases and solar PPAs are similar in that each allows you to add solar panels to your roof and benefit from the power they produce without actually having to own the panels yourself.

You can often get a lease or a PPA without having to put any money down upfront. And by doing so, you can typically expect to save around 10-30% on your monthly energy costs. You won’t have to worry about maintaining or repairing the system yourself either.

That being said, solar leasing and PPAs do have a few downsides relative to owning solar panels outright. For example, the amount that you can save on your monthly energy bill will always be capped. You won’t qualify for any tax incentives either.

Solar leases vs. PPAs

The terms solar lease and PPA are often used interchangeably. However, there are a few key differences between the two solar financing options that are worth exploring.

Solar leases involve paying the company that owns the panels a fixed (often escalating) monthly rate to use them. This rate is typically tied to the amount of power that the panels will produce in an average year but it remains constant each month instead of fluctuating based on your energy consumption.

Solar PPAs work a bit differently. When you sign up for one, you aren’t renting the solar panels that get installed on your roof. What you’re actually doing is agreeing to buy the power that those panels generate from the company that owns them at a set (escalating) rate over a number of years.

Generally, the cost savings from both options will equal out over the course of the year. But you have more control over how much you pay each month if you go with a PPA.

That’s because, with a PPA, the less power you use, the less you pay. With a solar lease, you pay the same amount each month, regardless of how much power you use.

Types of leases and solar PPAs to consider

The specific types of solar leases and PPAs that are available to you will depend on the options offered by installers in your area. The general features of your lease and PPA options will likely remain constant. But you could have several different pricing options to compare against one another.

For example, you might be able to choose from solar leases without any upfront payments and ones with only upfront payments and no, or very low monthly fees. The rates that you get offered with a PPA can also vary from installer to installer so be sure to shop around a bit to get the best deal.

Disadvantages of solar leasing

Solar leases and PPAs can be fantastic ways to enjoy the benefits of solar without owning panels. But they do have some downsides that are worth mentioning.

The first is that solar leasing tends to lock you into a long-term contract of 15-25 years. This means you should probably only enter into one of these agreements if you know that you are very likely to remain in the same home for that length of time.

You may be able to break your solar lease early, but doing so could cost you a lot. You might also be able to transfer the solar lease to whoever you sell your home to. But trying to do this could limit the pool of people who are interested in purchasing your home.

Additionally, you will likely save much more money on your energy bill over the long run by purchasing a solar system instead of leasing one. Buying panels outright will also qualify you for tax incentives and will increase the value of your property. That’s why most experts agree that if you can purchase your panels instead of leasing them, it’s generally a good idea to do so.

Who is solar leasing best for?

Solar leasing and PPAs can be an excellent alternative to purchasing a solar energy system outright. But they aren’t right for everyone. If you’re wondering whether a solar lease or a PPA is right for you, here are some things to think about.

Solar leasing and PPAs are good options if you:

• Want to avoid assuming any responsibilities for maintenance or repairs
• Aren’t eligible for federal and state tax incentives anyways
• Don’t want to have to spend any money upfront to start benefiting from solar energy

You might want to look into an alternative option if you want to maximize your solar savings and qualify for tax incentives. Generally, as long as you don’t mind being responsible for repairs and maintenance, picking a financing option that eventually allows you to own your solar energy system outright is the smartest move.

Solar loan vs. lease: which is right for you?

Solar panel loans are generally a better deal if you can afford them. They are usually paid off over the course of 5-15 years, whereas solar leases last for between 20-25 years.

Once you pay off your solar loan, you will get to enjoy another 15-25 years of energy savings at no cost to you. Solar leases don’t offer this benefit, which means that your lifetime savings potential with this option is capped.

That being said, with a solar loan, you own your solar panels. This means that you’re financially responsible for repairing them if something happens. But if you lease your panels, the company that you lease them from will usually handle any necessary repairs.

Understanding your payment options

If you do decide that you want to own your solar panels, getting a solar loan should be an option of last resort. That’s because these loans typically carry the highest interest rate out of all of your options, which means you end up paying more to own solar panels.

From a financial perspective, it is best to pay for your solar panels in cash if you can so that you don’t pay any interest whatsoever. If that doesn’t work for you, your next step should be to try and get a home equity loan since these usually are available with low interest rates.

You should only look into getting a solar loan if neither of these options works for you. Solar loans can be a great way to get access to the benefits of solar energy. They just aren’t typically a good first choice for financing a system.

When buying makes more sense

Buying is usually the better option if you can do it. When you purchase your solar system with a loan, you will eventually pay that loan off, even if it takes you 10-15 years to do so.

Once you pay the loan off, you get to enjoy the financial benefits of solar energy for another 10-15 years without having to make loan payments anymore. With a lease, this never happens. You have to keep making payments to the solar panel company for as long as you use the system. This caps your money-saving potential by quite a bit.

Tax credit

People who purchase solar panels with a loan also get to claim the federal tax credit for solar energy. You won’t get to do that if you lease your system instead. This is another way that your savings are limited when you choose to lease instead of own.

Increase value of property

A loan allows you to eventually own your solar panels outright. If you decide to sell your home with solar panels that you own yourself, the value of your house will go up. You won’t see as much value accrual if you just have a lease with a solar company that you try to transfer to the next owner.

When it’s a better decision to lease

Leasing is generally thought of as inferior to taking out a loan. But there are still some situations in which it makes sense.

For example, when you lease solar panels, you don’t have to assume any responsibility for maintaining or repairing them. If avoiding that responsibility is a big priority to you, then leasing could make sense.

Additionally, leases allow you to add solar panels to your home without having to outlay any cash upfront to do so. There are buying options that are similar to this. But signing a solar lease may allow you to put out the absolute minimum amount of upfront cash, which will be appealing to some consumers.

The difference between a solar lease and a PPA

The terms solar lease and solar PPA are often used interchangeably. However, there is actually a difference between the two types of solar agreements -- even if you don’t technically own the panels that you’re using under either type of agreement.

When you sign a solar lease, you are agreeing to pay what essentially amounts to rent in exchange for use of the system. When you sign a PPA, you are agreeing to pay the company that owns the solar panels a fixed price per kWh of power that the panels generate.

So with a PPA, your payments are based on how much energy you consume. With a solar lease, you pay the same amount every month, regardless of how much energy you consume.

Buy vs lease solar: monthly payments

As you compare solar loans and solar leases, your monthly payment under each type of agreement will likely be a big point of consideration.

Generally, solar loans tend to cost a bit more per month than solar leases. This is because solar loans are often paid back in 5 to 10 years, whereas solar leases are offered for 20-25 years most commonly.

Solar loans with longer payback periods do exist, however. So you may be able to find one with a monthly payment that is similar to what you would pay by taking on a solar lease.

Availability of solar leases vs solar loans

Solar loans are available in all 50 states. But solar leases are not legally allowed for residential consumers in some parts of the country.

That being said, it can be more difficult to qualify for a solar loan, since your monthly payment for one will be higher. To do so, you will likely need to have a decent credit score.

For example, some creditors that offer solar loans have a minimum credit score requirement of 660 and won’t allow you to assume a debt-to-income ratio of more than 45%.

Lease vs. buy solar: maintenance and repairs

Solar panels are generally very durable and easy to maintain. But when repairs are required, it will be the responsibility of the owner to pay for them.

If you choose a lease instead of a loan, you won’t have to worry about maintenance or repairs ever. This reduces the financial risk of adding solar panels to your home.

If you decide to take out a loan for your solar panels, then you will be responsible for maintenance and repairs. It is rare for a solar energy system to require extensive repairs that cost a lot. But if you are one of the unlucky ones who ends up needing them, you will have to be prepared to pay for them if you’ve taken out a solar loan.

Solar loan vs lease: making your decision

At the end of the day, both solar loans and leases can be viable ways to start enjoying the benefits of solar power. That being said, if you are considering your choice from just a financial perspective, then a solar loan will beat a solar lease every time.

Solar loans let you eventually own your solar system outright. When that happens, you will be able to continue saving money on your monthly electricity bill without having to make any additional payments.

This never happens with solar leases. You will always have to make payments to the company that manages the panels if you sign one, which reduces your savings potential by a lot.

That being said, a solar lease can make sense in some situations. Signing one could be a good decision for you if you want to enjoy solar panels with minimal upfront charges or you would like to avoid having to assume responsibility for repairs and maintenance.

Solar financing companies comparison

In this section, we’ll highlight some of the specific solar energy finance companies that you may want to look into if you’re interested in a solar loan, lease, or PPA.

Mosaic

Mosaic is a company that offers solar loans to residents of all 50 states and Washington DC. The company has helped more than 100,000 customers add solar panels to their properties.

The company’s loans range from as little as $10,000 to as much as $100,000. Mosaic offers interest rates as low as 2.49% and has a credit cutoff of 640.

LightStream Financial

LightStream Financial also offers solar loans to residents of all 50 states and Washington DC. The company is a division of SunTrust Bank.

LightStream Financial doesn’t share the lowest and highest value solar loan options that it offers. However, to qualify for a loan from this solar financing company, you need a credit score of at least 660. The company offers loan lengths of 2-12 years and interest rates ranging from 4.99% to 16.99%.

SunPower

SunPower offers solar leases and solar loans to residents of Arizona, California, Florida, Oregon, Texas, Massachusetts, Illinois, and several other states.

The company is one of the most popular solar financing options in the United States. It offers leases with 20-year terms that have performance guarantees built into the contract.

SunPower also offers loans with zero cash down requirements with terms ranging from 10 to 20 years. The company’s interest rates get as low as 3.99%.

SunRun

SunRun is another popular solar financing company that’s worth looking into. It offers solar leases, PPAs, and loans to residents of most states.

The company’s leases and PPAs are very straightforward. They require zero down payments and have 20-year terms. SunRun offers a solar loan, called Bright Advantage, which doesn’t require you to use any external sources of collateral, such as your home.

Non-Specialist Solar Lending Options

There are also a lot of financial companies that offer solar loans as part of their broader package of services. This table compares some of the most popular choices in this category:

Table courtesy of NerdWallet

Picking the right solar finance company for your needs

When the time arrives to make a decision about your solar finance company, you first have to understand what financing method you want to use.

If you don’t want to be responsible for maintaining or repairing your panels, then taking out a solar lease or signing a PPA can be a good option.

But if you want to maximize your solar savings and eventually own your solar panels outright, then you will need to either pay cash or take out a solar loan to accomplish those goals.

Once you understand what you want, it becomes easier to narrow down the list of solar energy finance companies that you’re considering. At this stage of the process, there’s really no substitute for research.

It’s important that you look into at least several different companies and compare things like interest rates, minimum credit score requirements, and loan amount options. You will also want to think about the reputation of the solar financing companies that you’re considering. It’s typically a better idea to go with a company that has a solid reputation already firmly established instead of going with an upstart.

Regardless of what you choose, solar is a smart investment

With so much to think about, it can be easy to get lost in the weeds while trying to figure out which solar financing option is right for you. But if you zoom out a bit, you realize that you really can’t go wrong with any option.

Solar is a fantastic investment and will almost assuredly save you money -- regardless of whether you pay for it with cash upfront, a solar loan, or a lease.

The details of how much money you save and what you have to do to save it vary with each option, to be sure. But each of them allows you to support the planet by embracing clean energy technology while also reducing the amount you have to spend on energy.

Solar financing options FAQs