How to Finance Your Solar Panels: Cash, Loan, Lease, and More

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Whether you’re looking to save money, avoid paying so much for your utility, or keeping carbon out of the atmosphere, homeowners generate their own energy with rooftop solar power. According to some estimates, 13.4% of households will be equipped with solar panels by 2030.

While prices fall steadily (although supply chain problems have pushed them up recently), rooftop solar power costs thousands of dollars, sometimes tens of thousands. Most people don’t have that kind of money on hand, but there are plenty of options for paying for solar power.

“Funding has always been an issue,” said Roger Horowitz, director of co-ops at Solar United Neighbors, a nonprofit and advocacy group that helps people adopt solar power in 11 states. Being able to finance solar energy often depends on having lots of money, good credit, and owning a home.

This article aims to cover some of the highlights of solar finance, but it should not be taken as financial advice. For this you will need to find someone more qualified to figure out if solar makes financial sense for you and how to best achieve it.

Buy solar panels with money

Perhaps the easiest way to buy solar panels is with cash, and the benefits are clear. With a cash payment, you avoid paying interest and loan fees, and don’t need a qualifying credit score. As a result, you will save more money over the life of your solar panels.

However, you have to shell out more money up front, so it will take some time for you to get back the money you spent. This period is called the payback period, and it is useful information in deciding if paying with cash is a good option for you. The average payback period is eight years in the USA, and you can find help to calculate your repayment period here.

A cash purchase gives you the opportunity to take advantage of the federal solar tax credit. If your solar panels are fully installed until 2022, the US government will give you 26% of the cost back when you file your taxes. In 2023, the credit falls to 22% and will disappear thereafter, except for new legislation.

This means you could get thousands of dollars back, but it also means you won’t get that money back until tax time.

Paying in cash works best for people who have a stable cash flow and can absorb such a large one-time payment, said Grant Klein, senior dealer relations specialist at Clean Energy Credit Union.

Buy solar panels with a loan

If you can’t afford to pay all at once, solar loans are widely available from many sources and in many forms, although a bad credit rating can disqualify you.

It is increasingly common for solar energy providers to offer loans, often from a third party. While these loans are easy to apply for, they can come with higher fees than options from a bank or credit union.

“The vast majority of people who buy solar power end up using loans from their installers,” Horowitz said. He pins this apparent preference on how easy it can be to get a loan in this manner. However, getting multiple loan proposals (at least two, Horowitz said) can save you a lot of money.

One of these options is a home equity loan or a home equity line of credit, where you borrow against the equity in your home (which you could get by selling it less what you owe on your mortgage). You can borrow up to 85% of that amount, according to the Federal Trade Commission.

You can claim the federal solar energy tax credit if you buy solar power with a loan, although it comes back to you when you file your taxes, not when you buy your system. . Still, it could be helpful in repaying the loan.

Solar loans can be secured or unsecured. A secured loan is a loan backed by collateral, like your house or the solar panels themselves. Essentially, you are saying that the lender can sell your collateral to pay off the loan if you don’t pay it. Solar loans are most often secured by solar equipment, Klein said. Home equity loans are secured by the value of your home. Unsecured loans do not have this collateral that backs them up. As a result, secured loans offer lower interest rates and longer repayment terms.

With any of these options, it is important to shop around and compare lenders. Again, this article should not be taken as financial advice.

Get government help to buy solar panels

Beyond the federal solar energy tax credit, the federal government (and sometimes your state) can help you with a few other financing options.

A HomeStyle Energy Mortgage from Fannie Mae allows you to add the cost of a solar project to your new or refinanced mortgage. the Federal Housing Administration offers additions similar to mortgages. The quantity of money you can borrow is determined based on the value of your home.

One of the benefits of an energy efficient mortgage is that you borrow money once instead of twice. This means that you only pay one set of loan costs and fees, and you can pay it back over 30 years, instead of 10 or 15 as you can with other solar loans. This keeps your monthly payment low. Not all lending institutions offer loans under these programs, and the borrowing process can be complicated.

“They tend to be more complicated because you have to make a lot of phone calls to reach the right people,” Horowitz said. This can place an additional burden on people with fewer financial resources, the people the program is meant to help. It’s important to work with an institution that knows how to navigate these systems, Horowitz said.

An energy efficient mortgage can be used for other energy efficient equipment in addition to solar panels such as new insulation, new doors and windows, smart thermostats, or water efficiency improvements. Regardless of the upgrade, it has to be cost effective, which means it has to save more money over its lifetime than it costs. For most places in the country, solar panels will certainly meet this requirement.

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Another option is Clean energy rated by property, which deserves a brief mention although it is only available to residential customers in California, Florida and Missouri. By working with a local PACE office, you can finance your solar panels and pay off the loan over a longer period with an additional charge on your taxes. In theory, this makes large purchases more affordable, although the early iterations of the program actually had buried some low income homeowners in debt and the possibility of foreclosure. New regulations adopted by state legislatures could solve this problem.

Obtain solar energy through a rental or electricity purchase contract

If purchasing solar power with cash or with a loan is out of reach due to bad credit, lack of money, or some other reason, you still have options. Instead of buying, you can enter into a contract to lease or purchase electricity with a solar energy supplier. With both options, bundled as third-party solar power, the solar energy supplier owns the panels and you agree to either pay for the equipment (via a lease) or pay for the electricity (contract for electricity). purchase of electricity), usually at a lower price than yours. pay for your utility.

CNET went into details on power purchase contracts earlier, but briefly, here’s what you need to know.

The biggest advantages of these arrangements are that you don’t have to buy solar panels to get solar power. Typically, you’ll also save money on electricity over the life of your contract. And you won’t have to worry about the maintenance of the panels, although maintenance is usually not a huge burden.

Power purchase contracts usually save you less money than buying panels outright. And, depending on the price of your lease or power purchase and the increase in your payment over time, you could end up saving a lot less. The federal tax credit also goes to the owner of the system, in this case the solar company.

Because these deals typically last 25 years, they work best if you plan to stay in your home for the long term. Anecdotal reports reveal that moving to a home with third-party solar panels can be expensive and expensive. What happens if you move out is something you’ll want to be sure of before you stick third-party solar panels on your roof.

Also be aware that third party ownership of solar panels is not permitted in all states.

Which solar financing option is the best?

Sorry! I am not giving financial advice here. Before making a decision, make sure you get the advice you need from a qualified person, get several offers on projects or solar loans, and do your utmost to read all the fine print.

Are there any financing options that I left out? Others that interest you? Have you financed solar panels in a way that has worked perfectly for you? Contact us through the comments and let me know.

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