Solar panel systems are becoming increasingly affordable, but their $20,498 average cost means that financing is sometimes the best option. If you don’t have–or aren’t willing to spend–the capital for a cash purchase but want to maximize the financial benefits of a solar energy system, the solar loan offers the best of both worlds.
An overview of solar loans
- There are many solar loan options available to you today.
- With a solar loan, you can save 40-70 percent over the lifetime of your solar panels.
- Plenty of financiers offer $0-down loan options, and most allow you to finance the full cost of your solar panel system.
- Many different types of institutions offer solar loans, from traditional banks to utility companies.
- Solar loans have the same basic structure, terms and conditions as other home improvement loans.
- Solar loans offer immediate returns by saving you money on your electricity bills right away, even as you repay the loan.
- The EnergySage Marketplace helps you find and evaluate your solar loan options, as well as high quality pre-screened solar installers.
What’s in this article?
- Financing with a solar loan
- Solar loans vs. home improvement loans
- Choosing a solar loan
- Disadvantages of solar loans
- Where to find a solar loan
Finance your solar panel system with a solar loan
Have you ever taken out a loan for a home renovation project? Solar panel loans are similar to home improvement loans that homeowners have used for decades to build a deck, upgrade their HVAC system, or add a second bathroom to their homes. And like this other types of loans, when you borrow money from a lender to finance a solar panel system, you agree to pay it back, plus interest, in monthly installments over a set loan term.
Solar panel loans have the same basic considerations as other types of loans. As you’re comparing your solar loan options, remember:
- The lower your interest rate, the lower your overall cost to borrow.
- Loans with shorter terms will generally have higher monthly payments, but lower total costs over the loan term.
- Solar panel loans can either be secured or unsecured, resulting in a wide array of interest rates, term lengths, and credit requirements among loan offerings.
Solar vs. home improvement loans: one very important difference
A solar panel loan allows you to own an asset that generates significant financial value. This includes the value of electricity generated by the solar panel system over its 25+ year lifespan, property value appreciation, the federal investment tax credit, and other applicable rebates and incentives. While a new kitchen is a nice addition to your home–and one that will likely improve your property value–it does not offer the same type of continuous financial benefits.
Solar loans: how to choose
Like any other financial option, solar panel loans come in many different packages, with varying structures, terms, and conditions. There are several options to consider when finding the right solar energy loan for you.
Types of solar loans: secured vs. unsecured
You can categorize most solar loans into two general buckets: secured and unsecured loans. Secured loans require an asset that will serve as collateral for the loan – in most cases, that asset will be your home, and your lender will put a lien on your property. On the other hand, unsecured loans do not require any collateral other than the solar equipment itself.
Green mortgages are a way to pay for a solar system on a new home. In addition to the borrowed money for your home mortgage, you can also borrow a secondary amount to pay for the upgrades involved in a solar system. There are even green refinances available depending on the lender you choose.
Payment cycles for solar loans
Is your goal to maximize savings, or would you rather start saving on day one of your solar panel system? The monthly loan amount you’re willing to pay each month will impact the interest rate and the length of the loan. Loans with longer terms will have smaller monthly payments–oftentimes payments that are lower than your current electricity bill–but you will pay more in interest over the life of the loan. On the other hand, payments on solar energy loans
Secured solar loans vs. unsecured solar loans
|Secured solar loans||Unsecured solar loans|
|Requires an asset for collateral (i.e. lien on your home)||Yes||No|
|Lenders may foreclose if you default||Yes||No|
|Interest is tax-deductable||Sometimes||No|
|May have undisclosed fees||No||Yes|
Where can you find a solar loan?
Fortunately, solar loans have become increasingly accessible in recent years – and the number of banks and institutions offering solar loans continues to grow!
If you’re already getting a quote from a company, it’s likely that they’ll come to the table with a few different financing options. Those loan options–and others you find directly–can come from a few different sources:
- Credit unions: local banks and credit unions all over the country offer energy loan products for homeowners. You can often find some of the lowest-cost, most advantageous loan options here!
- National lending institutions: solar is growing in popularity, and big banks are jumping on board. Many now offer specialty loan products tailored to residential solar panel systems.
- Public-private partnerships: local government agencies often partner with private lenders to offer solar loans with lower interest rates and no fees.
- Utilities: some utility companies offer competitive on-bill financing programs that allow you to finance solar energy systems, and repay the borrowed amount through your monthly electric bills.
- Municipalities: though not available in all states, some municipalities offer Property Assessed Clean Energy (PACE) solar energy financing. When you finance a system with a PACE loan, you repay it via an annual assessment on your property tax bill.
- Specialized solar lenders: many companies today specialize in–and solely provide–solar loan products. They partner with banks and work with a network of solar installers to offer loans.
Can you finance a battery installation with a solar loan?
Yes! But this isn’t an option with all types of loans, so make sure to confirm with your chosen financier specifically before proceeding just to be safe. Many lending institutions these days allow you to wrap in battery costs in your full loan amount, and some have even built tailored solar-plus-storage or standalone storage loan packages
Disadvantages of solar loans
As with any loan, there are some things to consider before using a loan to finance your solar panel system. Solar loans have the potential to extend the time it takes to break even on your solar installation. The interest on a loan also reduces your total savings when you subtract that from the loan amount itself.
Start your solar journey today with EnergySage
EnergySage is the nation’s leading online solar marketplace: when you sign up for a free account, we connect you with solar companies in your area, who compete for your business with custom solar quotes tailored to fit your needs. Over 10 million people come to EnergySage each year to learn about, shop for and invest in solar. Sign up today to see how much solar can save you.