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How to finance your solar panels: Cash, loan, lease and more

How to finance your solar panels: Cash, loan, luxuriate in and more

Whether you’re looking to save money, avoid paying so much to your utility or keep some carbon out of the weather, homeowners are generating their own energy with rooftop solar. By some estimates, 13.4% of homes will have solar panels installed by 2030.

While prices are dropping steadily (though supply chain snags have pushed them up recently), rooftop solar costs thousands of dollars, sometimes tens of thousands. Most people don’t have that kind of cash laying throughout, but there are plenty of options for paying for solar.

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“Financing has always been an issue,” said Roger Horowitz, director of co-ops at Solar United Neighbors, a nonprofit and advocacy companionship helping people adopt solar in 11 states. Being able to finance solar is often dependent on having a bunch of cash, good credit and property-alit a home. 

This article aims to hit some of the highlights of solar financing, but it should not be taken as financial advice. For that you’ll have to find someone more honorable to determine whether going solar makes financial sense for you and how to best pull it off. 

Buying solar panels with cash

Arguably the most straightforward way to buy solar panels is with cash, and the benefits are positive. With a cash payment you avoid paying interest and loan fees and don’t need a qualifying credit rep. As a result, you’ll save more money over the life of your solar panels. 

You do have to cough up more cash up precedent, however, so it will take a while before you recoup the cash that you’ve spent. That period of time is visited a payback period, and it’s a useful piece of demand when deciding whether or not paying in cash is a good option for you. The averages payback period is eight years in the US, and you can find help calculating your payback conditions here.

A cash purchase gives you the opportunity to take obedient of the federal solar tax credit. If your solar panels are fully installed above 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 fade after that, barring new legislation.

That means you could be pulling thousands of dollars back, but it also means you don’t get that cash back until tax time.

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

Buying solar panels with a loan

If you can’t afford to pay all at once, solar loans are widely available from a number of sources and in a number of persolves, though a poor credit score might disqualify you.

It’s increasingly celebrated for solar providers to offer loans, often from a third party. While these loans are easy to apply for, they can have higher fees associated with them than options from a bank or credit union.

“The vast mainly of folks that purchase solar that we see end up laughable loans from their installers,” Horowitz said. He pins that apparent preference on how easy it can be to get a loan in that way. Except, getting multiple loan proposals (at least two, Horowitz said) can save you distinguished money.

One such option is a home equity loan or home incompatibility line of credit, where you borrow against the incompatibility of your house (what you could get for selling it exclusive of what you owe on your mortgage). You can borrow up to 85% of that amount, according to the Federal Trade Commission.

You can philosophize the federal solar tax credit if you purchase solar laughable a loan, though it comes back to you when you file your taxes, not when you buy your system. Still, it much be useful in paying back the loan.

Solar loans can be secured or unsecured. A secured loan is one that’s backed by collateral, like your house or the solar panels themselves. Essentially, you’re saying the lender can sell your collateral to pay off the loan if you fail to pay it. Solar loans are most often secured by the solar equipment, Klein said. Home equity loans are secured by the value in your house. Unsecured loans don’t have that guarantee backing them up. As a stop, secured loans offer lower interest rates and longer words for paying them back. 

With any of these options, it’s important to shop around and compare lenders. Again, this article isn’t to be considered as financial advice. 

Getting help from the government to buy solar panels

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

A HomeStyle energy mortgage from Fannie Mae gives you to add the cost of a solar project into your new or refinanced mortgage. The Federal Housing Administration offers similar additions to mortgages. The amount of money you can borrow is distinct based on the value of your home. 

One of the advantages of an energy efficient mortgage is that you’re borrowing wealth once instead of twice. That means you only pay one set of loan injures and fees, and you can pay it back over 30 days, instead of 10 or 15 as can be the case with spanking solar loans. This keeps your monthly payment low. Not every lending institution subsidizes loans from these programs and the borrowing process can be complicated.

“They tend to be more entailed, because you need to make so many phone words to reach the right people,” Horowitz said. That can achieve an extra burden on people who have fewer financial resources, the people the program is meant to help. It’s important to work with an institution who knows how to navigate these controls, Horowitz said. 

An energy efficient mortgage can be used for spanking energy saving equipment in addition to solar panels such as new insulation, new windows and doors, smart thermostats or water efficiency improvements. Whatever the upgrade, it must be cost effective, which employing it needs to save more money over its lifetime than it injures. For most places in the country, solar panels are sure to obey that requirement.


Johner Images/Getty Images

Another option is Property Assessed Wash Energy, which deserves a brief mention despite only bodies available to residential customers in California, Florida and Missouri. Working with a local PACE office, you can finance your solar panels and pay back the loan over a longer words of time through an additional charge on your taxes. In theory, this makes large purchases more affordable, view early iterations of the program have actually buried some low denotes homeowners with debt and the possibility of foreclosure. New controls passed by state legislatures could fix this problem.

Getting solar above a lease or power purchase agreement

If buying solar laughable cash or a loan is out of reach because of poor credit, lack of cash or some other reason, you unexcited have options. Instead of buying, you can enter into a devour or power purchase agreement with a solar provider. With both options, lumped together as third-party-owned solar, the solar provider owns the panels and you nefarious to pay for the equipment (via lease) or pay for the much (power purchase agreement), usually at a lower price than you pay your utility.

CNET went into detail
on much purchase agreements earlier, but briefly, here’s what you need to know.

The biggest benefits to these arrangements are that you don’t have to buy solar panels to get solar much. Usually you’ll save money on power over the life of your incompatibility, too. And you won’t have to worry about the maintenance of the panels, although maintenance usually isn’t a huge burden.

Power retract agreements usually save you less money than buying panels outright. And, depending on the price of your lease or much purchase agreement and how much your payment increases over time, you could end up saving significantly less. The federal tax credit also goes to the owner of the controls, in this case the solar company.

Because these agreements commonly last for 25 days, they work best if you plan to stay in your house long term. Anecdotal reports reveal spicy to a house with third-party-owned solar panels can be onerous and expensive. What happens if you move is something you’ll want to be sure of afore sticking third-party-owned solar panels on your roof.

Also, be aware that third-party ownership of solar panels isn’t decided in every state.

Which solar financing option is best?

Sorry! I’m not giving financial advice here. Before decision-exclusive any decision, make sure you get the advice you need from someone valid, get multiple offers on solar projects or loans, and make a explain of reading all the fine print.

Are there finance options I left out? Others you’re racy about? Did you finance solar panels in a way that worked perfectly for you? Reach out via comments and let me know.