As more innovations are made in solar technology, consumers can expect more cost reductions and energy efficiency changes. Many homeowners and experts are excited about the new green products and efficient possibilities on the horizon.
Making a suitable, informed financial decision on solar financing can go a long way. Switching to solar energy is a fantastic way to invest in both the environment and your wallet, resulting in:
- Reduced carbon footprint
- Continuous solar system upgrades over time
- Lower energy bills
When considering your solar financing option, make sure you’re aware of the solar system ownership details, collateral requirements, and associated risks. If you’re considering a personal loan for solar system financing, here are a few reputable lenders to get you started with comparing rates:
Solar panel financing is essential for those who want to harness the power of solar energy for either personal or commercial needs. While solar panels are energy efficient and green, they can be inaccessible due to their high installation costs. Personal loans can be a viable option for solar panel financing, offering an alternative way to cover these costs.
In this guide, we’ll go over all you need to know about solar panel financing so you can get started with creating a suitable solar panel financing strategy that aligns with your needs and goals.
The benefits of solar panel installation
Solar panels offer a great environmental boon in that they reduce your carbon footprint while generating sustainable energy for your home or business.
In addition, solar panels offer economic perks. They come with lower electricity bills, leading to long-term savings.
You can also increase the resale value of your property by installing solar panels. Many homebuyers in today’s market find existing solar panel systems an attractive feature in homes.
All the benefits combined together make solar panels an attractive energy solution both environmentally and economically.
The cost of solar panels
Installing a solar panel into your home or business can cost thousands of dollars. The average total cost for installing a solar panel system goes for around $27,000, though the exact amount can vary greatly depending on your financing methods, solar panel choices, and even your location.
Here is a breakdown of the common costs of installing a solar panel into your home.
Equipment and modules
The solar panels themselves contribute greatly to the total cost of installing a solar system. Higher efficiency panels are usually more expensive upfront, but can save you more in electricity bills in the long term.
If solar panels are common in your neighborhood, installation can cost less. However, if you’re a trendsetter in the area, installing a solar panel can cost several thousand dollars more. Installing a solar panel on average can cost around $15,000 before taking into account tax credits.
Obtaining the necessary solar system permits will cost a certain fee that varies based on your location. A solar electric permit usually costs several hundred dollars.
Additional solar panel-related costs need to be considered before choosing your financing method.
For example, inverters meant for electricity conversion can also cost between $1,000 to $2,000. A power optimizer might cost around $150. You will also need to consider wiring, batteries, monitoring systems, and other potential expenses.
Factors influencing overall cost of your solar panel
Many costs go into the total expense of installing solar panels. Here are the main factors that affect how much it will cost you:
- Panel type
- Location (affects sunlight availability, local climate, and energy production)
- Size of the solar system (5kW, 10kW, and 15kW systems are popular choices)
- Federal, state, and local level solar incentives
- Installation labor cost
- Roof steepness and traits
Different financing options available
A solar lease essentially lets you rent a solar panel system from a solar company. You will need to pay a fixed monthly amount to use the solar panels. The company typically provides maintenance and panel monitoring services in return.
The main element to consider when it comes to solar leases is that even though they can be a cheaper method of using solar power for your home, you won’t actually own the solar panels. This can prove an issue if you want to sell your property later down the line.
The main advantages of opting for a solar lease include:
- Low to no upfront costs
- Zero-down options available
- Predictable fixed monthly payments
- Cheaper electricity produced by the solar panel system
- No need to deal with maintenance or repairs by yourself
- Lowered carbon footprint by switching to solar energy
The main drawbacks of a solar lease are:
- You don’t own the solar panel system
- Fewer to no tax incentives
- Can be harder to sell the home
- Monthly fees continue indeterminately
- No net metering programs and benefits
Solar Power Purchase Agreements (PPAs)
A Solar Power Purchase Agreement (PPA) is an arrangement that involves a solar company installing a solar system on your property. You don’t need to lease or buy the solar system. Instead, you only need to pay for the power that you use.
The advantage of a PPA is that you don’t need to spend the high upfront costs of buying and installing the solar panels yourself. You also don’t need to agree to a long-term lease like in the case of a solar lease. Instead, as the homeowner, you will be billed the electricity that is generated by the solar panels based on a measured metering system.
With a solar PPA, you assume relatively minimal risk for the solar panels. If there are faulty parts that need repairing or replacement, you don’t need to worry about the repair or maintenance fees. The solar company responsible for your PPA will handle the solar system problems.
A solar PPA could help you save money on electricity and solar panel installations. However, it is advisable to carefully consider your PPA providers to find the best option. Not all PPAs can save you money and hassle in the long run. If you opt for a PPA, be aware that you won’t own the system. This means you won’t be eligible for solar tax incentives. It can also become challenging to sell the property since many homebuyers dislike property with attached solar PPAs.
Home equity loans
A home equity loan allows you to borrow against the existing equity of your property. This can be a good way to obtain a loan with low interest rates and convenient financing. However, the loan is secured by your home’s equity, which means failing to make loan payments can result in foreclosure. The potential to lose your house means many homeowners opt for another financing method for their solar systems.
A personal loan can be flexibly used for a wide range of purposes. This versatility means that you can use the personal loan funds for installing a solar panel and also for any maintenance or repair costs in the future.
Unlike personal loans, solar loans are specifically designed for those wanting to work on solar installation projects. The loan usage limitation may benefit or hinder you depending on whether you plan to spend all the loan funds for installing your solar system. Solar loans allow you to purchase and own the solar system, which means you could benefit from tax credits and incentives.
Solar loans often have lower interest rates and longer terms than the average personal loan. However, consider that many solar loans are secured by collateral. The collateral is typically your home or solar system. Defaulting on the loan risks losing the collateral asset, potentially resulting in foreclosure.
Federal and state tax credits and rebates
The government incentives solar systems due to the desire to encourage more people to adopt solar energy. If you own a solar system, you could benefit from the following tax credits and incentives, such as the Federal Solar Tax Credit.
Things to consider when choosing a financing option
Your current financial situation
Consider whether now is the best time to take out a loan or sign a solar leasing agreement. Buying and installing solar panels can cause a dent to your savings and hurt your financial stability. If you do not have adequate repayment capacity, be cautious when it comes to committing to a financing option.
Here are a few factors to consider regarding your financial situation:
- Your monthly budget
- Expected expenditures
- Job or income changes
- If you have sufficient emergency savings
- Your existing financial obligations
Depending on your financing option, your credit score could have a significant effect on your rates and terms. The higher your credit score, the easier it becomes to be approved of a loan with favorable interest rates.
Solar panel ownership
Owning the solar system enables you to receive tax credits. These can help you save a significant amount of money. However, choosing a solar PPA or lease for installing a solar system on your property means you won’t own the solar panel and therefore will not receive the tax credit.
Owning a solar system can improve your home’s resale value. On the other hand, leasing a solar system can actually hurt the resale value.
Potential energy savings vs. financing costs
While a solar panel can bring you substantial energy savings, you need to weigh the savings against the cost of financing. Make sure to take into account your financing method and any tax credits.
Duration and terms of the loan or lease
If you take out a loan, you will be committing yourself to repaying that debt for months if not years depending on the specific loan terms. Make sure that you’re ready to manage this debt for the designated duration.
Taking a solar lease could mean a long lasting fixed monthly payment, at least for while you live in the associated house. This could become an inconvenient, expensive long-term drain on your finances since you won’t end up owning the solar system.
Importance of shopping around
Getting multiple quotes
Comparing quotes is a fast and easy way to decide which solar loan, lease, or PPA provider offers the best deals.
Comparing financing offers
If you’re opting for a personal loan, make sure you take the time to compare loan providers and offers. Look at various elements of a loan, including:
- Interest rate
- Annual percentage rate (APR)
- Fees and charges
- Prepayment penalties
- Late payment fees
Read reviews and seek recommendations
Word of mouth is a good way to find out whether a solar provider creates useful, high quality products and services. If you have any friends, family, or neighbors who use solar panels, you could ask them for recommendations. In addition, online review sites and videos can be a valuable source of information on your solar panel options.
Preparing for the financing process
Being prepared for the financing process can facilitate a smoother, more seamless experience. Here are some important steps that can help guide you.
Gather necessary documents
Regardless of whether you opt for a lease, personal loan, solar loan, or other type of financing strategy, you can expect the provider to request certain documentation. The information will be used to evaluate how suitable you are to receive financing for solar panels.
Commonly required documents include:
- Proof of income
- Credit history
- Home ownership details
Be aware of potential credit checks and their impact
Soft credit checks (AKA soft inquiries) will not affect your credit score. However, hard inquiries do drop your credit score by around five points each time. If you’re applying for multiple loans at the same time, the credit checks could stack up and start decreasing your credit score more substantially.
Monitoring your credit score as you apply for loans can help you get a better idea of how your creditworthiness is being affected from all the credit checks.
Additional costs and considerations
Make sure you consider various potential, variable costs associated with installing a solar system. Here are the most common related expenses to keep in mind.
- Maintenance costs
- Repair costs
- System upgrades and expansions
- Solar panel warranties
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