Installing a solar panel system on your home comes with an upfront cost but provides long-term savings on electricity and environmental benefits. For homeowners interested in going solar but concerned about budget, several smart financing options exist beyond paying cash.
Cash Purchase – Paying Out of Pocket
The most straightforward approach is paying cash upfront for your solar panel system, either using savings or a home equity loan/line of credit. This avoids any additional finance charges but requires having $15,000-$25,000 or more available to cover the full cost of a professionally installed system.
Going the cash purchase route also allows you to maximize state/federal tax credits and incentives. The primary limitation is that few homeowners have tens of thousands in readily available cash, even with home equity financing. And most would prefer to put that level of cash toward other home improvements or investments.
Financing Through Your Solar Installer
Many professional solar installers offer their own in-house financing or partnerships with lenders to provide customers with financing options. This approach simplifies the process by bundling lending directly with the installer.
Solar loans offered by installers typically run 10-20 years to spread out payments over the system’s lifespan. Interest rates between 6-8% are common, making the total cost 20% to 30% more than paying cash. The installers handle all the loan paperwork and provide a single bill covering the solar loan payment plus ongoing system monitoring and maintenance.
Home Equity Loans/Lines of Credit
If you have sufficient existing home equity, borrowing against it via a home equity loan or line of credit can provide an affordable way to finance solar panels or other major home projects. Interest rates are competitive, and the interest paid is usually tax deductible.
The limitations are that using home equity financing requires substantial available equity, typically at least 50% loan-to-value. It also adds another monthly payment to your expenses and increases your overall debt obligations. As with any loan against your home, defaulting carries the risk of losing the house.
Solar Leases/PPAs – Little to No Upfront Cost
Solar lease and power purchase agreements (PPAs) allow homeowners to install solar power systems for little to no money out of pocket. Instead of buying the panels, you basically rent them from a solar company.
While lease/PPA agreements have no upfront installation costs, the monthly bills don’t typically decline over time like a solar loan payment. And you don’t own the panels or get the tax credits. The benefit, at least according to the experts at Vivint Solar, is accessing solar power for your home with no system purchase cost. But you must qualify based on sufficient income and credit score.
Solar Crowdfunding – Shared Financial Backing
A newer trend is crowdfunding platforms that allow multiple investors to provide financial backing for renewable energy projects. Homeowners needing funds for solar panels can create a profile with their system details to attract individual and corporate investors.
In exchange for financing part or all a solar installation, the investors receive a portion of the State/Federal tax credits, incentives, and ongoing electricity savings. This innovative peer-to-peer lending model helps worthy solar projects succeed by tapping many funders rather than a single lender.
For homeowners, crowdfunding arrangements can finance solar panels with little or no upfront cost. The primary drawback is sharing future electricity cost savings from the system.
Today’s many options for solar financing make installing a panel system feasible even if you don’t have tens of thousands in cash readily available. Each method carries pros and cons to weigh carefully based on your financial situation and goals. But with the right financing, you can begin generating clean, renewable solar power for your home.