The best way to find your home’s solar financing options is to research available loan providers carefully. Borrowers should pay attention to annual percentage rates (APRs), lender fees and loan terms. Purchasing your solar power system outright with cash provides the highest value in the long run. However, this option is only possible for some homeowners.
Cash Payments
Homeowners should shop for the best options and evaluate properly the cost to finance solar panels, like purchasing any other household product. This could mean they opt for a solar company with loan products offering the lowest interest rates or more appealing terms. For example, a solar company has a solar home improvement loan with a low annual percentage rate (APR) and an attractive repayment term of 15 or 20 years. It may also have a lower down payment requirement than other lenders. Some also offer unsecured solar loans. It allows borrowers to prequalify for a loan without a hard credit pull, which can help them gauge what loan terms they might qualify for before applying. It also offers a range of flexible loan features, including choosing your monthly payment date.
Solar Loans
Using a personal loan to finance solar panels can reduce upfront costs and offer a more flexible repayment schedule. Homeowners can check their prequalification or preapproval without undergoing a credit pull at several online lenders. Many solar companies also provide their financing through third-party providers. Some homeowners may want to combine their solar panel financing with a mortgage or a home equity line of credit, allowing them to use their homes’ value as collateral for low-interest rates. However, homeowners should carefully weigh these options against the benefits of a solar lease or PPA.
Power Purchase Agreements (PPAs)
Using PPAs, solar companies take on the initial project design, permitting, and financing, and homeowners pay for the clean energy generated. This allows them to avoid upfront costs and achieve their sustainability goals much sooner. Typically, solar PPA rates include an annual price escalator of 1 to 5 percent, lower than projected utility rate increases. This helps offset system efficiency decreases over time and other factors.
PPAs are popular with large electricity consumers that benefit from stable pricing and avoid the risk of capacity payments. Potential off-takers must consider their ability to manage imbalance and the risks associated with a PPA contract. As with home improvement loans, several lender fees must be considered when comparing PPAs to other types of financing. These may include application, origination and prepayment fees. Also, a homeowner’s credit history and other financial circumstances will impact their loan application approval.
Solar Leases
Homeowners can consider a solar lease if a cash purchase or solar loan isn’t an option. This financing tool allows homeowners to avoid upfront costs and delegate maintenance and repair responsibilities to a third party in exchange for a monthly fee. Solar leasing companies often offer financial incentives unavailable for solar loan or panel purchase customers, including credits to offset electricity charges.
Whether you purchase, lease, or finance, most people will reach the point in 7 to 10 years when their power bill savings surpass their initial investment, known as the solar payback period. For most homeowners, the best option is to purchase a solar system using a loan if you qualify for low–interest rates and have equity in your home.
