Editor’s Note: This blog post is part of the SunShot Initiative’s series on solar and real estate. Read all the posts here.
After you’ve made the decision to go solar, the next step is figuring out how to pay for it. Assuming you don’t have the cash to buy your solar energy system upfront, like the vast majority of Americans, there are a variety of financing options to help you hitch onto the solar bandwagon and start increasing the value of your home.
The simplest way to get capital to go solar is through a loan, these are affordable solar financing options for every budget. Whether you want to maximize your financial returns or find an easy solar solution to save money and help the environment, there is a financing option that works for you which can save you anywhere from 40% to 70% over the lifetime of your solar panels. These loans are similar to most home improvement loans used to complete upgrades or renovations, such as finishing a basement or re-doing your kitchen. A variety of sources offer loans, including banks and solar installers.
Regardless of the type of loan you secure, the solar on your roof is going to add value to your home. A recent study found that home buyers across the country have been willing to pay a premium of about $15,000 for a home with an average-sized solar array. Another study fond homes with solar panels sell faster than those without.
Solar Panel Financing Options
The financial, environmental, and community benefits of solar energy systems make them very attractive. Still, a solar photovoltaic (PV) system is a significant upfront investment. Cash purchases and solar leases (or PPAs) are no longer the only options for property owners who want to go solar. For solar shoppers who lack the capital for a cash purchase but want to maximize the financial benefits of their solar energy system, the solar loan offers the perfect solution. Even if you decide not to purchase your solar PV system in cash, solar financing options like a $0-down solar loan or solar lease/PPA can help you go solar and save money on your electric bill.
Solar loan overview
- There are many solar loan options available to you.
- With a solar loan, you can save 40-70% over the lifetime of your solar panels.
- Many are $0-down loans, and allow you to finance the total amount of your solar panel system.
- Many different types of institutions offer solar loans, from traditional banks to solar panel manufacturers.
- 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.
- Eco Solar Home Improvement 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
Solar panel loans are similar to home improvement loans that homeowners have used for decades to build a deck or add a second bathroom to their homes. When a homeowner borrows money from a lender, they agree to pay it back, plus interest, in monthly installments over the loan term.
Solar panel loans have the same basic considerations as other types of loans:
- Lower interest rates result in lower overall costs for borrowers.
- Loans with shorter terms will generally have higher monthly payments and lower total costs over the life of the loan.
- Solar panel loans can be either secured or unsecured, which results in a wide array of interest rates, term lengths, and credit requirements among loan offerings.
One very important difference
There is one very important difference between solar panel loans and other home improvement loans: a solar panel loan allows you to own an asset that generates significant financial value. This includes both the value of electricity generated by the solar panel system over its lifespan and the 30% federal investment tax credit and other applicable rebates and incentives like utility bill credits While a new kitchen or deck is a nice addition to your home, they do not offer the same type of financial benefits.
Like any other financial product, solar panel loans have different structures, terms, and conditions. In order to find the solar energy loan that is right for you, there are two fundamental questions that you need to ask.
Do you want a secured or unsecured option?
Solar energy loans can be divided into two categories. Secured loans require an asset that will serve as collateral for the loan – in most cases, that asset will be your home. Unsecured loans do not require any collateral other than the solar panel system itself. Both loan categories have implications for the borrower.
How much are you willing to pay for each monthly loan installment?
The amount you want to pay each month will impact the interest rate and the length of the loan. Loans with longer terms will have smaller monthly payments, but you will pay more in interest over the life of the loan. In contrast, 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 the loan.
The availability of solar loans
In addition to traditional banks, there are many other institutions that offer solar energy loans.
- Solar panel manufacturers offer loans, often through their solar installer networks.
- Credit unions all over the country are developing solar energy loan products for homeowners and often offer lower-cost solar loans.
- National lending institutions offer specialty loan products tailored to residential solar panel systems.
- Public-private partnerships can offer solar energy loan programs. Local government agencies partner with private lenders to offer solar loans with lower interest rates and no fees.
- Utilities offer on-bill financing programs that allow homeowners to finance solar energy systems and repay the borrowed amount through electric bills.
- Municipalities sometimes offer PACE (Property Assessed Clean Energy) solar energy loans, which are repaid by an annual assessment on property owners’ property tax bill.