Solar Loans: The Best of Both Worlds

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Solar LoansSolar loans are bridging the gap between purchasing your solar panel system with cash and using a lease or PPA. Like a purchase, a solar loan allows you to own your system and reap the many financial benefits tied to ownership. Like a lease or PPA, it will allow you to go solar with no money down. Today, a host of banks, credit unions and specialty finance companies have emerged presenting a wide range of solar loans.

None of the money down, all the rebates, benefits and solar incentives

These loans allow homeowners to own their solar power system which in turn allows them to earn all of the rebates, tax credits and production-based incentives such as SRECs that are often tied to ownership. At the same time, they also require no money down! With solar loans, homeowners experience the best of both worlds. For more info about solar loans see our post:  Another Piece to the Puzzle: Solar Loans Make it Even Easier Install Home Solar Panel Systems.

In this post, we will take a deeper dive, examining the specific annual cash flows for a cash purchase, a zero-down lease, and a loan-financed purchase of a 6.3 kW solar power system located in Los Altos, California. We ran this analysis using our new EnergySage Instant Estimate tool, developed with support from the Department of Energy’s SunShot Initiative. You can use this same tool to find out how your own cash flows would change under each financing method. It takes less than a minute and you’ll get the same information for your specific property.

solar loan comp chart

As you can see, the cash purchase is hands-down the best overall financial option, with a payback timeframe of about 6.7 years and a 20 year net financial gain of about $45,000. While this is the best financial outcome, it requires an $18,000 upfront investment. Many people either don’t have the cash or may prefer to keep it invested in other assets. For them, a zero down option such as a solar loan or a solar lease is a better solar incentive. With the solar loan, there is immediate positive cash flow of $700 in the first year and a handsome 20-year financial return of $28,000. This example is based on a specific loan offered through an EnergySage installer, but homeowners also have the option of lower-interest rate home equity loans that deliver even better financial returns. Of the three options presented, the zero-down lease has the lowest overall financial return, but it delivers other benefits such as having maintenance included.

In this example, the solar loan allows homeowners to capture some of the upside of both the cash purchase and the lease. It provides much higher long-term financial returns than the lease while still offering the benefit of no initial out-of-pocket investment. Up until now, the market has been dominated by solar leases, but as more lenders enter the market and new flexible debt structures emerge, we expect that solar loans will become more and more attractive as a major solar incentive.

Got a minute? Use our Instant Estimate to find out how much you can save by going solar.

One thought on “Solar Loans: The Best of Both Worlds

  1. Zack

    I want solar but have concerns regarding PPA and purchase. I may sell my house and move in 4 years. PPA may make selling more difficult and I don’t want a solar loan to pay on after moving. Is savings from purchase and increased home value worth a purchase in my case? Appreciate your advice.

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