Solar financing refers to the various ways that homeowners, businesses, and investors can pay for solar panel systems. Instead of having to pay the full upfront costs of a solar installation, solar financing spreads out these payments over time. This makes going solar more affordable and accessible.
With the right solar financing option, you can start saving money with solar energy while avoiding the high initial investment.
How Does Solar Financing Work?
Solar financing provides an alternative way to pay for the equipment and installation costs of solar panels. Instead of paying outright, you take out a solar loan or sign a solar lease agreement. This covers the provider’s costs plus financing fees.
In return, you pay this money back over time through fixed monthly payments. These incremental payments make solar energy systems affordable even if you don’t have thousands saved up to purchase a system. Solar financing can be arranged prior to the system’s installation.
Solar financing providers figure out the specifics of each deal, like system sizes, equipment packages, financing lengths, interest rates, and payment amounts. You’ll go over these details and sign a contract before going ahead. This contract locks in the terms even if equipment prices change in the future.
After installation, your monthly payments go toward:
- Paying back financing principal and interest
- Maintaining, monitoring, and repairing the solar system
- Covering the provider’s costs and profits
You also get to keep all the savings from the solar electricity as well as any tax credits and incentives.
Who Offers Solar Financing?
There are a few sources for solar financing:
Solar Installation Companies
Many solar contractors have in-house experts to help you choose the right solar financing option for your particular home and budget. Going through the installation company often provides a seamless process from quote to install to financing.
Banks and Credit Unions
Green banks, credit unions and some traditional banks provide solar loans with favorable interest rates. They offer terms from about 3 to 20 years. Banks can finance solar installations through home improvement, equity or personal loans.
Solar Leasing/PPA Providers
Companies like Sunrun, SunPower, Tesla, and others focus specifically on leasing solar systems or selling the power through solar PPAs. This is their business model rather than just one financing option.
Investors
Groups of investors finance solar installations through investment funds or by putting up the capital directly and owning the systems. The investors benefit from tax credits and cash flows while the home/business gets cheaper solar power through zero-money-down options.
What Are The Different Types of Solar Financing Options?
There are a few main ways to finance solar panels with some variation in how each works. The financing option you choose impacts everything from system ownership and upfront costs to long-term savings and financial obligations.
Solar Loans
Taking out a solar loan allows you to borrow money to cover the costs of a solar installation on your home or business. Solar loans provide financing for both solar PV and solar hot water systems. They give you ownership over the equipment.
Benefits:
- Keep ownership of solar system
- Pay off system over time
- Immediately start saving with solar
- Fixed interest rates
- Increase home value
- Potentially deduct interest from taxes
Considerations:
- On the hook for system repairs and maintenance
- Need to qualify for loan
- Pay financing fees and interest charges
Solar Leases
Solar leasing allows you to essentially rent out a solar system installed on your property in exchange for monthly lease payments. This lets you access solar energy with little to no money down. But you don’t retain ownership when the term ends.
Benefits:
- Lower upfront costs
- Fixed monthly rates
- Maintenance and repairs included
- Upgrade to newer technology at end of term
- Shorter commitment than buying
Considerations:
- Do not keep ownership of tax credits or system
- Early termination fees can apply
- Does not add property value like an owned system
Solar Power Purchase Agreements (PPAs)
A solar PPA is a financial agreement where a developer arranges for the design, permitting, financing, and installation of a solar energy system on your property at little or no cost. The developer sells electricity to you at a fixed rate that’s typically lower than your current utility rate.
Benefits:
- No upfront costs for equipment/installation
- Fixed, lower electricity rates
- Developer handles monitoring and maintenance
- Hedge against rising utility rates
Considerations:
- Locked into long-term rates and contract
- Do not own renewable energy credits
- Contracts transfer upon selling property
Community Solar
With community solar, multiple homeowners subscribe to a shared, centralized solar farm. This offsite solar installation provides power bill credits and savings to subscribers while the developer handles upkeep. Community solar provides a simple solution for renters or properties unsuitable for on-site solar.
Benefits:
- Gain solar savings with no on-site installation
- More flexible subscription options
- Low and no money down options
- Credits directly offset electricity bills
Considerations:
- Receive bill credits rather than direct savings/income
- Limited control over production and operations
- Potential subscription limits from utility
What Should You Look For in Solar Financing Deals?
Navigating between the different solar financing deals on the market today can make your head spin. So what key qualities set the prime offers apart?
Favorable Interest Rates & Fees
For any financing deal involving borrowing capital and paying interest charges, which includes solar loans, make sure to get the lowest rates possible. Even an extra percent over decades adds up. Application fees should also be low or waived.
Shorter Commitment Terms
While longer financing terms of 20-30 years reduce your monthly costs, they lock you in for decades. Shorter terms around 5-15 years allow you to eventually own your system outright while paying less overall interest.
Lower Down Payments
Minimizing any money required upfront makes solar more accessible and affordable from the start. But lower down payments may correlate with higher interest rates over time.
Positive Cash Flow
By financing just a portion of your overall system instead of the entire cost, you can structure deals to provide immediate net savings. So you get cash flowing back within the first year.
Highly Rated Provider
Reputations Vet solar financing companies thoroughly and read reviews before committing. You want reliable partners that have funded numerous projects while making the financing process smooth and transparent.
Exit Strategy Clauses
Things happen in life, so having contract exit clauses provides flexibility. Reasonable early termination fees that decrease over time are most fair.