If you’re looking to finance solar panels for your home, there are a few things you’ll need to be aware of to select the best option for you. Several factors may impact the cost of your solar loan, including your credit score and current debt-to-income ratio (DTI), the loan’s interest rate, and any solar loan fees.
Our team of Energy Advisors often receives questions about understanding solar loans and solar loan fees. So we’re breaking down some common terms, various fees, and questions to ask your potential lender so you can feel confident you’re making the right decision. Note: Energy Advisors are your dedicated, unbiased guide to answer questions and help navigate going solar. They’re a free resource available to you through your EnergySage account.
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.
- If you’re financing a solar system with a solar loan, you’ll want to be aware of any loan fees.
- Common solar fees include an origination fee or dealer fee to cover the cost of administering your solar loan and incurring the risk associated with lending money.
- We share a simple checklist with four questions to ask your lender to ensure you know the details of your solar loan.
- Make sure to ask your solar installer and lender any questions you have so you can feel confident about going solar!
- Sign up for a free account on the EnergySage Marketplace to compare solar quotes, including financing options from top lenders.
What’s in this article?
- Common solar loan types
- Common solar loan fees
- Interest costs vs. solar loan fees
- Determining your solar loan fees
- Avoid hidden solar loan fees with our checklist
- What are some benefits of solar loans?
- Frequently asked questions about solar loans
Common solar loan types
According to our Marketplace data, about two-thirds of EnergySage customers request solar loan information as part of their quotes when considering solar. Before diving into solar loan fees, it’s essential to understand the two main types of solar loans available if you choose to finance your solar investment: secured and unsecured loans.
Each of these loans has different benefits to consider and will likely have different interest rates and fees associated with it. A secured solar loan usually requires collateral like your home, so if you fail to make payments the lender can place a lien on it. An unsecured loan usually won’t require collateral, so there’s more risk the lender is taking – thus, these loans typically have higher interest rates.
Why is my monthly payment higher for the first year of my solar loan?
About half of the solar loans quoted on the EnergySage Marketplace are reamortized loans, so you’ll notice on your solar loan quote that your monthly payments during the first year are higher. For example, if you have a 25-year reamortized loan, years 2 – 25 will have a lower monthly payment than year one, as shown below in an EnergySage solar quote view example.
This payment structure is because lenders are taking into account your investment tax credit (ITC), also known as the federal solar tax credit, which allows you to deduct 26 percent of the cost of installing a solar energy system from your federal taxes. The lender assumes that you’ll receive a substantial tax refund, allowing you to pay off a higher portion of your loan during year one. It’s important to note that this isn’t the case for everyone depending on your tax liability.
Depending on the type of solar loan you decide to go with, you may also have one where payments are equal over the lifetime of your loan — a standard loan. Talk with your lender about options to figure out the best one for you.
Solar financing tip: If you’re looking for more options on solar loans during your quoting process, just ask your installer or lender what other options they have available. They may present you with the most common or preferred option first, but they likely have other options to consider.
Common solar loan fees
It’s common for any loan you get to have fees associated with it — from mortgages to personal loans. Solar loans are just like loans for any major purchase: you’ll want to understand what you’ll be paying each month as well as the total payment over the lifetime of the loan.
Your solar loan may have fees, such as:
- Origination fee
- Dealer fee
- Closing costs
Most solar loans will have one of the above fees, but they’re all essentially the same. For solar loans, the most common fee is an origination or dealer fee, which is similar to an origination fee on a home loan. Basically, this is the fee for administering the funds and covering the risk associated with the loan (since the lender is taking on some risk that you’ll pay the loan back). There’s no industry standard dealer fee, so it’ll vary.
Occasionally your solar loan may have closing costs listed, which are similar to an origination fee in that they’re associated with closing on the loan. Fees can either be laid out as a specific flat amount (most common) or a percentage of your total solar loan amount (less common). Your lender can explain any details about your loan including the interest rate and fees.
Interest costs vs. solar loan fees
Separate from any loan fees is the interest charged on your solar loan. This varies depending on your credit score and current debt. Just as with other loans, lenders usually offer lower interest rates to you if you have an excellent credit score – a FICO Score of 800 – 850 is considered exceptional and usually earns you the lowest interest rates. It’s important to note that even if you have a lower credit score, you can often still qualify for a solar loan, it just may cost you a bit more in interest, so your monthly payment will be higher.
Determining your solar loan fees
Any loan documentation you get from your installer or lender should clearly lay out your interest rate and any fees. The best thing you can do is to ask questions if you’re unclear. Just as your installer helps explain the solar panel equipment, your lender can explain any details on solar panel financing and what options are available to you. After all, solar is an investment and it’s important that you know the details on your new investment.
Avoid hidden solar loan fees with our checklist
The best way to avoid hidden solar loan fees is to carefully review any loan documents to make sure you understand the fees you’re paying upfront and any additional costs associated with your loan. You should also feel comfortable asking your potential installer or lender any questions to ensure you understand your fees, interest rate, and the overall cost of your solar loan.
We created a checklist with four questions you’ll want to ask your lender about your solar loan to make sure you understand what you’re paying and any fees:
1. What is the difference in the cash price?
Some installers offer a different price for cash buyers compared to those financing solar. Before deciding how to finance your system, it’s worth asking your installer to make sure you get the best deal that’s affordable for you.
2. What are the interest rate and loan term (length)?
Confirm the length of the loan and the interest rate you’ll be paying. This is clearly called out in your EnergySage quote online or in any loan paperwork if you’re using a lender outside of EnergySage.
3. What is the fee?
Confirm the fee you’re paying, whether it’s an origination fee or dealer fee.
4. Are there any prepayment penalties?
Most solar loans don’t have a prepayment penalty, which is a charge for paying off your loan early. But, you’ll want to ask and confirm in any loan documentation if there is one.
What are some benefits of solar loans?
Oftentimes, you can get a solar loan that lets you pay no money down. This enables you to go solar without a large upfront investment. While you’ll pay more overall (because of interest and fees), depending on your loan terms you can often save enough on your electric bills to cover monthly payments. Additionally, with the solar ITC and if your state has other incentives and net metering, you may decrease your overall costs even more and speed up your payback period.
Frequently asked questions about solar loans
If you’re able to pay cash for going solar, you’ll avoid paying interest and any dealer or origination fees. However, buying and installing solar panels is costly (even though you save money over time and usually pay back your initial solar expenses in just about 8.7 years). So, a solar loan is a good way to go solar with little or no money down. You can compare solar quotes on EnergySage and easily request financing options from the installers providing you with quotes to see what makes the most sense for you.
Your finance charge or interest rate on a solar loan will vary depending on a few factors including the type of loan (secured or unsecured), your credit score and current debt, and the current U.S. Federal Reserve (the Fed) rate. Your annual percentage rate for solar may be approximately 4 – 5 percent.
That depends. You can sometimes claim the interest of your solar loan as a “capital investment” to your home if you itemize deductions for your federal taxes. Of course, you’ll need to check with your CPA or a tax professional to confirm based on your individual situation and tax filing and confirm the most up-to-date IRS guidelines. Separately, adding solar panels to your home (whether you pay cash or with a loan) does qualify you for the investment tax credit (ITC), also known as the federal solar tax credit, which allows you to deduct 26 percent of your solar installation costs from your federal taxes.
How do I find trusted solar lenders?
You can easily join EnergySage today for free to get connected with installers in your area who offer financing options or work with trusted local solar lenders. Through your EnergySage account, you can compare multiple quotes as well as financing options. Just curious who offers solar financing near you? You also search for lenders in your area.