Solar financing options in 2023

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How to finance your solar panels in 2023

Solar panel financing includes two primary options: solar loans or solar leasing. Lending can come from various sources, such as a bank, credit union or government agency. There are also several options for types of loans, such as a home equity loan or a Federal Housing Authority (FHA) loan. Solar panels can also be purchased with cash. Read on to discover more about solar energy financing companies, government solar incentives, and low-interest solar loans. Compare the pros and cons of residential solar financing or commercial solar financing to make an informed buying decision. 

Cash purchase

Paying cash upfront for your solar panel installation is an interest-free way to pay for home solar panels. As with most home improvements, paying a portion of the cost upfront is wiser and often required. You should not pay the remaining amount owed until the work is completed, has passed permits, and is connected to the power grid. Paying with cash often has the quickest return on your initial investment.

Cost of solar panels

The average cost of solar panels runs from $19,650 to $40,000, depending on the type and number of panels and other factors, such as your location. Since this is a significant investment, many people choose not to pay cash either because they cannot afford to or because they do not want to deplete their savings. 

Homeowner benefits

Paying cash makes selling your home simpler since there are no loans that the buyer will have to take over or you will have to pay off. Cash also guarantees that the solar buyer will qualify for the Residential Clean Energy Credit of 30% (formerly called the Solar Investment Tax Credit). This government solar incentive allows unused federal tax credits to roll over year-to-year until fully claimed. This tax credit was raised from 26% to 30% in 2022 and is available until 2032. After 2032, the credit will reduce to 26% in 2033, 22% in 2034, and expire in 2035.

Additional benefits of a cash purchase

Net metering is another benefit for homeowners who pay cash. Net metering gives electricity bill credits to solar owners who produce extra energy and send it back to the grid. Not all electric providers have net metering programs; check with your provider or utility to see if net metering programs are available.

When a cash purchase is the best option

• Have the upfront capital to invest in the system and don’t want to take out a loan.
• You want to pay as little as possible over the long run.
• You want to collect all possible financial rebates and incentives or participate in net metering.

Pros and cons of cash purchase

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Solar loans

Next to cash, solar loans are typically the most beneficial for the homeowner because you can still take advantage of tax rebates, incentives, and net metering programs. However, you will be accruing interest on the loan amount. You can obtain a solar loan through your solar installer, a bank or credit union, government agencies, or other financial institutions. Goodleap, Mosaic, and Lightstream are three companies that assist buyers with obtaining solar loans. 

What to watch out for with a solar loan

Pay very close attention to the terms of your loan. Several issues can arise, according to homeowners on review sites like Reddit, such as difficulties refinancing their mortgage while having a solar loan. Some solar panel financing agreements will include interest-only payments for the loan’s first year (or longer) to give the homeowner time to obtain the rebates and incentives to pay toward the loan. This arrangement makes monthly payments seem low, but the loan can be re-amortized, or restructured, to have higher monthly payments for the remainder of the term. However, depending on your financial situation and interest rate, this option may or may not be the most financially sound for you.

Another thing to look out for is any dealer fees. Some loan options have fees for setting up a loan through their company. These fees can add several thousand dollars to the total price. As with car shopping, you should shop around for a loan with the best terms. Any time you can pay off a loan earlier than necessary will benefit you by reducing the amount of interest you pay. 

When solar financing is the best option

• You don’t have much capital, but do have a good or excellent credit score.
• You want to collect solar incentives and rebates or participate in net metering.
• You are comfortable taking on a long-term loan and are good at paying close attention to the details of a loan.

Pros and cons of solar power financing

Solar leases

A solar lease is an agreement between the homeowner and the solar developer. The solar developer designs, builds, and maintains the solar array on the homeowner’s property. This agreement releases the homeowner of much involvement in the day-to-day upkeep of the solar panels. 

Solar leases are typically the path to solar with the least upfront costs. However, it is not necessarily the best option in the long run and could even cost the homeowner more money over time. 

Things to consider with solar leasing

One major consideration is buying or selling a home with leased solar panels. Because of the complexities and number of parties involved in a solar lease, some home lenders are hesitant to work with buyers interested in a home with leased solar panels. This condition can become a hassle when buying or selling a home. 

The nice thing about a solar lease, besides the little to no upfront cost, is that the price should be the same every month for the duration of the lease. Solar is an investment, so make sure this price is lower than your average monthly electric bill. 

At the end of the lease, which could last 20 years or longer, the homeowner will either return the solar panels or pay a fee to own them outright. If returning, the removal of the solar panels is handled by the solar developer. Fully removing all parts of the array may take several months. 

The lease agreement should clearly state who is responsible and who holds liability if issues with the solar panels come up, including maintenance issues, or if the solar developer is no longer in business before the end of the lease. 

Solar power purchase agreement

A solar Power Purchase Agreement (PPA) is a similar to a solar lease, but the terms can be very different. It’s extremely important to fully understand the terms of a PPA and the difference between a solar lease and a PPA. Like a solar lease, you need clear answers outlined in the agreement regarding liability with installation, maintenance, and removal procedures.With a traditional solar lease, you pay the same amount each month. With a PPA, this may or may not be the case. 

Here are some things to consider when it comes to solar PPAs: 

• Monthly payment based on how much electricity is generated. 
• The electricity rate you pay the solar developer may go up over time.
• Some PPAs have clauses that require the homeowner to buy the energy produced by the panels whether or not they need it. 
• Too many panels may not be financially beneficial if you use significantly less energy at certain times of the year, go out of town for a long time, or your energy needs decrease for any reason.
• The PPA may restrict accessing your roof and making changes to your property. 
• Ask about a contingency plan if the solar developer is no longer in business before the end of the PPA. 

When a solar lease is the best option

• You want to utilize renewable energy, but don’t have the capital to purchase or finance.
• You want the most hands-off approach to solar panels on your property.
• You are not planning on selling your home during the lease term and are good at paying close attention to the details of a loan.

Pros and cons of solar leasing