Solar Panel Financing: 2024 Guide – MarketWatch

Most solar panel companies offer two or more financing options. Each option affects your installation total, solar incentive eligibility and return on investment (ROI). Here’s a breakdown of the typical solar financing options available through solar providers. 

Cash Purchases

A cash purchase is the most straightforward payment option. You pay for your solar system up-front, eliminating interest rates, loan fees or credit score checks. Considering solar panels last 25 to 35 years, making a cash payment is equivalent to prepaying for your solar energy. The downside is that you need a large amount of cash, ranging as high as $18,000 to $25,000.

Thanks to this higher initial investment, your payback period will start sooner. The payback period is the time it takes for your energy savings to equal the amount you invested in your solar panel system. The average payback period is six to 10 years, but it varies from system to system. 

A cash purchase makes you the legal owner of your solar system. Full ownership qualifies you for solar incentives and credits that offset your system costs. For example, the federal solar tax credit provides first-time solar owners with a tax reduction equal to 30% of their installation costs. Your state or municipality may offer additional rebates and incentives.

Solar Loans

A solar loan is a great option if making such a large up-front payment isn’t possible. Solar loans allow homeowners to make small monthly payments over a long period. You’ll need a good credit score to qualify for the best rates. Excellent credit scores could qualify you for little to no money down. Like a cash purchase, a solar loan makes you the owner of your system and qualifies you for incentives and rebates.

Solar panel loans are offered through third-party loan providers and sometimes through the provider itself. Below is a list of the most common types of loan options:

• Unsecured loans: These loans allow you to borrow from a lender without collateral. They offer quick approvals and may not require any money down. Personal loans fall into this category. 
• Secured loans: These loans are backed by collateral that can be sold off if you’re unable to make the payments. These loans usually have longer terms but lower interest rates. In addition, interest rates on secured loans are tax deductible. Home equity loans and home equity lines of credit are examples of secured loans. 

It’s important to review the loan terms, including the origination fee, repayment schedule and annual percentage rate (APR). Most loans have fixed, low-interest rates to keep payments as consistent as possible. The APR will add to your total installation cost and extend your payback period. Find loans with the lowest rates to keep your loan amount within a reasonable total. 

Solar Leases

Solar leases are an alternative if a cash purchase or solar loan isn’t an option. This involves renting your solar power system through a solar provider. You pay a fixed rate to use the solar panels each month. A typical lease lasts between 10 and 25 years. During this time, the solar company is responsible for the upkeep of your system. Most companies include warranty coverage with regular servicing, maintenance and power production guarantees. A power production clause guarantees your system will produce a specific output, or the company is responsible for repairing or replacing your panels.

The downside is that leases don’t grant you ownership of the system, disqualifying you from cost-saving solar incentives. Solar leases can also pose a problem if you plan to sell your home. Some companies allow you to move a leased system to a new home if it’s within the coverage area.

If you don’t plan to transfer your services, you’ll need to either buy out the rest of your solar lease or have the new buyer take it over. Depending on the time left on your lease, you’ll have to make a substantial cash payment to end it. If you decide to transfer to someone else, they’ll need to meet the criteria for the lease, which may include a credit check.

Power Purchase Agreements (PPAs)

Power purchase agreements (PPAs) are another form of solar panel leasing. Instead of paying a fixed “rent” for the panels each, you only pay for the power you use. You’ll pay per kilowatt-hour (kWh) used each month and your bill will fluctuate. These payments are significantly less than monthly loan or lease payments and don’t include repayment terms. These agreements also usually have the longest contracts, lasting between 20 and 25 years. 

Unfortunately, PPAs are only available in some states. According to the Database of State Incentives for Renewables and Efficiency (DSIRE), less than 30 states allow PPAs. Even authorized states may impose restrictions on the PPA terms, including restrictions on the size of your solar system. PPAs disqualify you from solar credits and incentives and provide the least financial benefits.

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