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Key Points
A solar loan is a financing option for buying solar panels.
Residential solar loans are best for homeowners who want to own their solar panels without paying the total cost upfront.
Compare quotes from multiple lenders to ensure you’re choosing the right solar loan for your circumstances.
Ready to go solar? Call 877-307-7668to be connected with a solar expert today!
What is a solar loan?
A solar loan is a form of financing that allows you to buy solar panels without paying for them upfront, similar to a loan for a car or other major purchase. The average solar panel system costs $31,558 ($3.67 per watt for an 8.6 kilowatt system). Because the initial cost of solar panels is high, many residents choose residential solar financing as an alternative to a cash payment.
Solar loans are best for homeowners who want to avoid a single cash payment but want to own their home solar panels. There are other solar financing options, like solar leases and power purchase agreements (PPAs), which are better for homeowners or renters who aren’t concerned with owning their systems. This guide will cover the basics of solar panel loans, including how to secure a solar loan, the types of loans available, and what to consider when searching for the best solar financing companies.
What do solar loans cover?
Solar loans can apply to the price of your entire solar system. This includes solar components like panels, batteries, and inverters. It will also include soft costs, like installation, permitting, and inspection fees. Generally, you can’t use solar loan funding to pay for the maintenance of your solar system, although terms and conditions vary by lender and loan agreement.
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Compare solar panel loans
Similar to shopping for a home mortgage loan or a solar installation company, we recommend getting between three and five quotes from different lenders so you can compare your options. Keep in mind that applying for loans may affect your credit score.
When comparing solar panel loans, keep these criteria in mind:
Annual percentage rate (APR): The APR includes the cost of a solar loan, including interest and additional fees.
Fixed or variable interest rates: It’s important to understand the structure of your interest rate before signing a loan agreement. Fixed interest rates remain the same over time, whereas variable interest rates can change.
Down payments: Some solar loans require a down payment, while others don’t. Be aware that many installers offer zero-down solar loan options, which may include higher interest rates.
Monthly payments: The loan agreement should clearly outline how much you’ll need to pay each month. Make sure you find a solar loan with a monthly payment that fits your budget.
Additional fees: Some lenders charge additional fees. These fees should be outlined in the contract.
Term lengths: Solar loan agreements include a term length, which determines how long it will take for you to pay off your loan. Longer term lengths normally have lower monthly payments, but could cost more in interest over time.
Know your overall budget before getting loan quotes. Consider the total cost of the loan, not just the monthly payment. Monthly payments can be manipulated to a lower amount by making the term of the loan longer, which will result in more money going toward interest rather than the principal cost of the loan. Ask for an itemized loan agreement before signing any documents.
Types of solar loans
Secured solar loans
Secured loans require an asset as collateral, such as your home, car, or solar system. Because there’s collateral, secured loans often have lower interest rates. The downside is if you miss your monthly payments on a secured loan, the collateral can be repossessed. Secured loans are not common in the solar industry.
Unsecured solar loans
Most solar loans are unsecured, meaning they do not require collateral in the form of personal assets. Because there isn’t collateral involved, unsecured loans are considered riskier for the lender and typically require higher credit thresholds and steeper interest rates.
Green mortgages or energy-efficient mortgages
A green mortgage or an energy-efficient mortgage (EEM) are types of secured loans based on the home meeting energy-efficient requirements. These loans use your home as collateral. Some lenders only offer these types of loans for new construction homes. Green loans may require more documentation than standard home loans because of the additional energy-efficiency standards.
Additional solar loan options
Third-party lenders: Many solar installers partner with third-party lenders to offer financing options for their customers. You may be able to secure lower interest rates or more favorable terms, but you should still get quotes from other lenders before signing a contract.
Home equity loan and home equity line of credit: These financing options are secured by your home. They often have lower interest rates because you use your home as collateral.
Personal loan: Personal loans include fixed interest rates, steady monthly payments, and are unsecured. Depending on your credit score, you may be able to get a personal loan from your bank or credit union.
FHA and Fannie Mae loans: FHA and Fannie Mae loans are types of mortgage loans that let you finance the purchase of a home and solar panel system at the same time.
Solar leases and PPAs: If you are comfortable with renting solar panels instead of owning them, a solar lease or PPA may be available depending on the installer you choose. You’ll make a monthly payment to rent your system and the installer maintains ownership. This means you won’t have to worry about maintenance costs or repairs, but you won’t qualify for solar incentives.
Pros and cons of solar loans
There are several factors to consider when thinking about whether a solar loan is right for you. This table outlines a few pros and cons of residential solar loans.
Extends the amount of time it’ll take for solar owners to experience a return on investment (ROI)
Owning the system increases home value
Monthly payments lower the savings you experience
How to get a solar loan
Get multiple quotes. Compare solar loans from different lenders, including any third-party lenders that work with your solar installer. Make sure to consider any differences in term lengths, interest rates, and additional fees that can impact your monthly payment.
Calculate your solar loan payment. You can use a solar loan calculator to estimate how much you’ll pay each month. Bankrate offers a loan calculator that can provide an instant estimate. (Bankrate is also owned by SaveOnEnergy’s parent company, Red Ventures.)
Apply for a solar loan. Once you’ve decided on the loan terms that best suit your needs, you can apply for the loan. The lender may have specific application requirements, including information about your address, income, and taxes. Most lenders set a credit threshold for loans, meaning your credit score will need to meet the threshold in order for your loan to be approved.
Receive funding. Once your solar loan is approved, you’ll receive funding to pay for the solar panels, either directly into your account or directly to your installer.
Best solar financing companies
You’ll likely have a few options when it comes to finding the best solar financing companies or lenders. Some of the most common lenders include:
Banks or credit unions. Credit unions typically have lower interest rates than banks but may have a longer loan application process and require higher credit scores.
Finance companies. This bucket includes companies such as LendingTree or Quicken Loans. It may be faster to get a loan from a finance company and easier for those with lower credit scores. However, these companies may have higher interest rates than banks and credit unions or other unfavorable terms.
Government agencies. These include public utilities and municipalities (i.e., local government). Government loans can also be public-private partnerships (PPPs). This setup means that a private institution manages the loan. Many government loans come with lower interest rates as an incentive. The Database of State Incentives for Renewables & Efficiency (DSIRE) provides information about solar incentives by state, including solar loans from the government.
Specialized solar lenders. This option can include getting a loan through your solar installer if they partner with a solar financing company. Some companies may sell the loan to another institution after funding. This practice is common with large loans, such as home mortgages, and will not change the terms of your loan.
Is a solar loan worth it?
Figuring out whether a solar loan is worth it depends on a number of factors, including the cost of the solar system, how much you could save on energy bills, and the terms of the solar loan agreement. You should also consider how long you plan to live in your current home since you probably won’t take your solar panels with you if you move.
If you sign a solar loan agreement, you’ll need to make monthly payments for an extended period of time. You’ll also be subject to paying interest on your system, lowering the savings you experience. The benefit is you will own your solar panels, qualify for solar incentives, experience an increase in your home value, and achieve savings on energy bills.
Ultimately, deciding whether a solar loan is right for you is unique to your circumstances. If you’re interested in learning more about how much solar panels cost for your home, fill out the form or call the number on this page.
Solar loan FAQs:
The credit requirements for a solar loan will vary depending on the lender. Rocket Mortgage claims the typical consumer needs a credit score of at least 600 to get a solar loan. Higher scores may be able to secure better rates.
Yes. Applying for a solar loan involves checking your credit, which can temporarily affect your credit score. Making on-time payments for your solar loan can increase your credit score over time. On the flip side, missing payments can lower your credit score.
A secured solar loan is tax deductible. An unsecured solar loan is not tax deductible.
According to Rocket Mortgage, most solar loans take between six and 20 years to pay off. The term length should be outlined in your loan agreement.
Both solar loans and leases avoid paying a large amount up front. Instead, you’ll make a monthly payment. The key difference between solar loans and leases lies in ownership. With a solar loan, you own the solar panel system and make monthly payments to pay it off. Under a solar lease or PPA, the solar installation company owns the system and you pay a monthly fee to lease the system.
Yes. If the terms of your loan include storage, you can also finance a solar battery. If you intend to do this, make sure the solar battery is included in your initial solar system quote. Also, adding battery storage to your loan terms will increase the overall cost of the loan by around $10,000, which could increase the payback period.