As with other types of financing, there’s often a lot of jargony documentation to decipher when it comes to evaluating and getting a solar loan. We break down some of the common terms you’ll see when comparing solar financing and loan options for you here.
Disclaimer: This article is intended to provide an informational overview of the solar loan fees for interested homeowners. It is not intended to serve as official financial guidance. Readers interested in installing solar products should use their best judgment and seek advice from a licensed professional before making any purchase or investment.
Annual percentage rate (APR)
The annual cost of getting credit, expressed as a percentage. Depending on your lender and the type of loan, you may see percentages for both an APR and interest rate in your loan documentation. If this is the case, the APR will usually be higher than the interest rate since it includes other loan fees.
A credit pull is another way to say credit inquiry. There are two types of credit inquiries — hard inquiries and soft inquiries.
Your credit report showcases information about your current and past credit accounts, including any credit cards, loans, mortgages, and inquiries. Most items stay on your credit report for seven years, though the duration can be longer or shorter depending on the item. Much of the information on your credit report determines your credit score. Lenders usually review your credit report before approving you for a loan.
See FICO Credit Score below
Also known as a loan fee or lender fee, solar lenders sometimes charge a premium to cover the risk associated with lending money for a loan. Additionally, fees could be assessed as closing costs depending on the lender and type of loan. Learn more about solar loan fees here.
The amount of money you’re required to put down to obtain a solar loan. Often, solar loans are available with no money down or zero down, though you’ll need to confirm specifics for your loan. If you receive a solar loan quote through EnergySage, the down payment amount is shown in your quote view.
FICO Credit Score
The credit scoring model most used by lenders. Your credit score falls on a scale between approximately 300 and 850, with a higher score indicating a lower risk to lenders. For example, a FICO Score of 800 or above is considered exceptional, and a score ranging from 740 to 799 is very good. A higher score means you’ll usually qualify for more competitive loan terms and lower interest rates.
Your credit score will vary depending on the scoring model, so the numeric value of your FICO Score may be different than your VantageScore (another scoring model often used). However, the ranges of credit scores are usually pretty comparable, so an excellent score in one score is usually excellent in another.
The length of your loan or how long you’ll be making payments. This is usually expressed in months. Your financing term may impact your interest rate or other loan fees. May also be known or labeled as loan term, loan length, or loan contract. If you get solar quotes on EnergySage, the financing term is available in your quote view.
Gross system price
This is the total cost of your solar system, inclusive of all interest, fees, equipment, and installation costs before any incentives, rebates, or credits. If you receive a solar loan quote through EnergySage, the gross system price is available in your quote view.
A hard inquiry, also known as a hard credit pull, happens when you complete an application with a lender for a solar loan and that potential lender requests to see your credit report and/or score. A hard inquiry will impact your credit score slightly for two years (which is the length of time it stays on your credit report). Though, unless you apply for a lot of credit over a short period, you usually won’t see a hugely negative impact on your score. You can see any hard inquiries when you view your credit report.
Home Equity Line of Credit (HELOC)
A line of credit secured by the equity in your home, which can be used for home improvements, debt consolidation, and other major purchases. Some homeowners leverage a HELOC to pay for solar panel installation. Interest paid in a HELOC is usually tax-deductible, but you’ll need to consult a tax professional to confirm based on your individual circumstances.
Home equity loan
Also known as a second mortgage, this allows you to borrow against the equity you’ve accrued in your home. Some homeowners use a home equity loan to pay for solar. The amount available to you in a home equity loan depends on various factors, such as the equity you’ve built up, your income, and your credit score. When you finance your solar panel system using a home equity loan, you will typically repay the lender through monthly payments at a fixed interest rate. The interest paid is typically tax-deductible, but you should consult a tax professional to confirm based on your individual situation. Learn more about home equity loans here.
The amount you pay to borrow from a lender in exchange for getting money to finance your solar panel system, expressed as a percentage. Interest is usually paid over the length of the loan. The interest rate is available in your EnergySage quote view if you’ve requested financing options.
Investment tax credit (ITC)
Also known as the federal solar tax credit, this is the tax credit available to anyone installing a residential or commercial solar system in the U.S. As of 2022, it is 26 percent, which means you get a credit for 26 percent of the cost of installing a solar energy system from your federal taxes. There is no cap on its value. Learn more about the ITC here.
The total cost over the lifetime of your solar loan, inclusive of the base amount (cost of solar panel installation), interest, and any fees. The loan amount is available in your EnergySage quote view if you’ve requested financing options.
See financing term. May also be known or labeled as loan length or loan contract.
This is the payment you’ll make each month for your solar loan. Depending on the type of loan, your monthly payment may be variable. The monthly payment is available in your EnergySage quote view if you’ve requested financing options.
Net system price
This is the cost of your solar system after any incentives, rebates, or credits. This gives you a better idea of your actual costs to determine your solar payback period or return on investment. The net system price is available in your EnergySage quote view if you receive a solar loan quote.
This is the amount of time it takes you to pay back your solar purchase or the amount of time to fully realize your return on investment (ROI). The length of your solar payback period varies due to factors including your total cost, energy usage, available incentives, and local cost of electricity. Learn how to calculate your solar payback period here.
Solar loan pre-approval is a way for a potential lender to gauge your creditworthiness to identify the potential terms and interest rates they may offer you for your solar loan. They usually use a soft inquiry or soft credit pull to get an initial view of your credit report. However, a pre-approval isn’t necessarily a guarantee, as your interest rate or terms may change if you’ve recently taken on additional debt or had a reduction in income.
Why do I have to share personal information to get preapproved for a loan?
You commonly need to provide additional personal information such as your Social Security number (SSN) to confirm your identity and prevent someone from fraudulently applying for credit in your name. It’s important to make sure you only provide any personally identifiable information (PII) to legitimate companies that follow best-in-class security standards. Also, you should always verify the legitimacy of communications before wiring money or sharing other financial information.
Loan prepayment is when you pay back the full amount of your solar loan before the loan term is complete. So if you have a 10-year loan and you pay the complete amount after five years, you’re making a prepayment.
A penalty imposed by a lender to a borrower for repaying the loan before its due date. In many cases, a solar loan will not have a prepayment penalty, but you should review your documentation completely and confirm this with your lender.
Similar to pre-approval, solar loan pre-qualification is a way for a potential lender to use a soft inquiry or soft credit pull to get an initial view of your credit report. In most cases, your lender will still need to confirm specific details such as your income, credit score, and if you’ve taken on any additional debt recently to finalize your loan terms. This is slightly different and usually less involved than a preapproval.
Power-purchase agreement (PPA)
This is a type of solar financing where a financier covers all costs to buy solar equipment and install it on your roof. Though the solar panel system is located on your property, they own it and take care of any necessary maintenance. Usually, these require zero money down and you agree to pay the owner of the system a set rate for each kilowatt-hour (kWh) your solar system generates. Learn more about PPAs here.
Secured solar loan
With a secured solar loan, the lender requires you to provide an asset as “security” for the loan in case you default on it. Usually, this means leveraging your home as collateral. Some examples of secured loans include HELOCs and home equity loans. Usually, you can get lower interest rates with secured loans, though the approval process takes a bit longer. Learn more about secured solar loans here.
A soft inquiry–also known as a soft credit pull–happens when a potential lender checks your credit report to pre-approve you for a solar loan. A soft inquiry doesn’t impact your credit score, and you can see any soft inquiries when you view your credit report.
A lending product specifically created to cover solar panel installation. Other lending options for financing solar could include HELOCs, home equity loans, personal loans, or a green bank loan.
Third-party ownership (TPO)
TPO is when someone other than the property owner or homeowner owns the solar system, including leases and power-purchase agreements. According to the National Renewable Energy Laboratory (NREL), TPOs represented 62 percent to 72 percent of U.S. solar systems between 2012 and 2014. However, over the last few years, TPO market share has decreased substantially as solar loans have become more accessible.
Unsecured solar loan
This loan type doesn’t require putting down your home or other collateral, so it can usually get approved more quickly. You are also likely to get zero-down payment options with an unsecured solar loan. However, you may have higher fees to make up for the fact that there’s no security for the lender as there is with a secured loan. Learn more about secured solar loans here.
How do you find trusted solar lenders?
Join EnergySage today for free to get connected with installers in your area who offer financing options or work with trusted local solar lenders. If you have any questions along the way about what solar financing might be best for you, speak with your installer or lender. Through your EnergySage account, you can compare multiple quotes and financing options. Just curious who offers solar financing nearby? You also search for lenders in your area.