Want to finance your solar panel installation? Cash purchases and solar leases (or PPAs) aren’t your only options. If you don’t have–or aren’t willing to spend–the capital for a cash purchase but want to maximize the financial benefits of a solar energy system, the solar loan offers the best of both worlds.Find out what solar panels cost in your area in 2021
An overview of solar loans
- There are many solar loan options available to you today.
- With a solar loan, you can save 40-70 percent over the lifetime of your solar panels.
- Plenty of financiers offer $0-down loan options, and most allow you to finance the full cost of your solar panel system.
- Many different types of institutions offer solar loans, from traditional banks to utility companies.
- Solar loans have the same basic structure, terms, and conditions as other home improvement loans.
- Solar loans offer immediate returns by saving you money on your electricity bills right away, even as you repay the loan.
- The SolarSolutions Solar Marketplace helps you find and evaluate your solar loan options, as well as high-quality pre-screened solar installers.
Finance your solar panel system with a solar loan
Have you ever taken out a loan for a home renovation project? Solar panel loans are similar to home improvement loans that homeowners have used for decades to build a deck, upgrade their HVAC system, or add a second bathroom to their homes. And like this other types of loans, when you borrow money from a lender to finance a solar panel system, you agree to pay it back, plus interest, in monthly installments over a set loan term.
Solar panel loans have the same basic considerations as other types of loans. As you’re comparing your solar loan options, remember:
- The lower your interest rate, the lower your overall cost to borrow.
- Loans with shorter terms will generally have higher monthly payments, but lower total costs over the loan term.
- Solar panel loans can either be secured or unsecured, resulting in a wide array of interest rates, term lengths, and credit requirements among loan offerings.
Solar vs. home improvement loans: one very important difference
A solar panel loan allows you to own an asset that generates significant financial value. This includes the value of electricity generated by the solar panel system over its 25+ year lifespan, property value appreciation, the federal investment tax credit, and other applicable rebates and incentives. While a new kitchen is a nice addition to your home–and one that will likely improve your property value–it does not offer the same type of continuous financial benefits.
Solar loans: how to choose
Like any other financial option, solar panel loans come in many different packages, with varying structures, terms, and conditions. In order to find the solar energy loan that is right for you, there are two major questions that you need to ask yourself first:
Do you want a secured or unsecured option?
You can categorize most solar loans into two general buckets: secured and unsecured loans. Secured loans require an asset that will serve as collateral for the loan – in most cases, that asset will be your home, and your lender will put a lien on your property. On the other hand, unsecured loans do not require any collateral other than the solar equipment itself.
How much are you willing to pay for each monthly loan installment?
Is your goal to maximize savings, or would you rather start saving on day one of your solar panel system? The monthly loan amount you’re willing to pay each month will impact the interest rate and the length of the loan. Loans with longer terms will have smaller monthly payments–oftentimes payments that are lower than your current electricity bill–but you will pay more in interest over the life of the loan. On the other hand, payments on solar energy loans with shorter terms may exceed your monthly utility bill savings, but they offer a better value because you pay less in interest over the life of your loan.
Secured solar loans vs. unsecured solar loans
|SECURED SOLAR LOANS||UNSECURED SOLAR LOANS|
|Requires an asset for collateral (i.e. lien on your home)||Yes||No|
|Lenders may foreclose if you default||Yes||No|
|Interest is tax-deductable||Yes||No|
|May have undisclosed fees||No||Yes|
Where can you find a solar loan?
Fortunately, solar loans have become increasingly accessible in recent years – and the number of banks and institutions offering solar loans continues to grow!
If you’re already getting a quote from a company, it’s likely that they’ll come to the table with a few different financing options. Those loan options–and others you find directly–can come from a few different sources:
- Credit unions: local banks and credit unions all over the country offer energy loan products for homeowners. You can often find some of the lowest-cost, most advantageous loan options here!
- National lending institutions: solar is growing in popularity, and big banks are jumping on board. Many now offer specialty loan products tailored to residential solar panel systems.
- Public-private partnerships: local government agencies often partner with private lenders to offer solar loans with lower interest rates and no fees.
- Utilities: some utility companies offer competitive on-bill financing programs that allow you to finance solar energy systems, and repay the borrowed amount through your monthly electric bills.
- Municipalities: though not available in all states, some municipalities offer Property Assessed Clean Energy (PACE) solar energy financing. When you finance a system with a PACE loan, you repay it via an annual assessment on your property tax bill.
- Specialized solar lenders: many companies today specialize in–and solely provide–solar loan products. They partner with banks and work with a network of solar installers to offer loans.
Not only can adding solar panels to a home save energy costs and help the environment, it also can potentially increase a home’s value. During the past year, homes with solar-energy systems sold for 4.1% more on average than comparable homes without solar power. For the median-valued home, that translates to an additional $9,274.
The sale premium varies substantially by market. In Riverside, Calif., for example, homes with solar-energy systems sold for 2.7% more than comparable homes without solar power—a markup of $9,926 for the median-valued home in the metro. In the greater New York City metro, solar-powered homes have a premium that is double that of Riverside. At 5.4%, that’s an extra $23,989 in value for the typical home in New York.
In three other coastal metro areas—Los Angeles, San Francisco and Orlando, Fla.—homes with solar power can fetch a premium of around 4%.
One reason houses with solar-energy systems sell for more than those without them is because they can provide substantial future energy cost savings. For homeowners who know they consume a lot of power, these future savings are worth spending a bit more money up front. It is also possible that homes with solar-energy systems are more likely to have other features that are hard to measure yet valuable, like heated floors, which could contribute to the premium associated with solar power.
Personal preferences play a role, too: More than 80% of home buyers say energy-efficient features are important, according to the Zillow Group Consumer Housing Trends Report.
We calculated the solar premium by comparing homes with and without solar-energy systems that were listed for sale and sold from March 1, 2018 to February 28, 2019, controlling for observable attributes of the homes, including bedrooms, bathrooms, square footage, age of the home and location.