In 2014, my husband and I got tired of sky-high electric bills and installed solar panels. We successfully slashed our electric bill, but with a price tag of more than $20,000, the installation costs were expensive.
Fortunately, solar power often pays homeowners back over time because of lower electric bills and increased property values. Federal tax credits and state-sponsored incentives can also provide more savings.
Still, finding a way to pay for solar installations is a challenge for many.
But there are options for financing this investment, including solar loans, personal loans, or home equity loans. The right choice depends on your situation, so read on to compare your options.
1. Solar loans
Solar loans provide money to pay your installer for your solar energy system. You’ll pay this money back to the lender over time. When you own your solar panels, you can claim the tax credits and incentives for which you’re eligible. (Check out what solar programs your state offers.)
When my husband and I spoke with solar installation companies, each had preferred lenders they worked with to offer financing. The loans were unsecured, which means no collateral was required.
You can typically borrow up to the entire cost of the solar energy system, including panels and installation. Loan terms vary, with different interest rates and repayment programs.
Working with a lender your installer recommends is convenient. But this isn’t always the most cost-efficient choice since other lenders might offer loans with more favorable terms.
It’s common to find loans with $0 down payments and reasonable fixed interest rates to keep payments low, but options vary by location.
EnergySage has a list of solar lenders that you can sort by state to find the best deals in your area. Remember that the loan still needs to be repaid even if you move and no longer benefit from the installation.
2. Personal loans
While you can find loans for solar installation projects, there’s no reason you must get a specific solar loan.
Instead, personal loans can be used for almost any purpose, including paying for solar energy systems. They are offered by many financial institutions, including national and local banks, online personal loan lenders, and credit unions.
By shopping for personal loans instead of solar-specific loans, you’ll be able to access more financing options.
There’s another bonus, too. Many solar installers — including the installer I used — offer a discount if you pay in cash. When you arrange a personal loan yourself instead of getting a solar loan through the installer, you can use that money to qualify for the cash discount.
After you pay for a solar installation with a personal loan, you can even use tax credits or incentives that you receive from the government to pay down your loan balance ahead of schedule, reducing your loan costs over time.
3. Home equity loans
Home equity loans are another option to fund a solar installation. If you have equity in your home, you can use a home equity loan or a home equity line of credit to cover the costs of a solar installation.
A home equity loan allows you to withdraw a set amount of equity once, while a home equity line of credit sets a maximum limit you can borrow and use as needed.
Borrowing against your home can be a good way to pay for solar power because, according to the IRS, you can deduct interest as long as the money is used to buy, build, or substantially improve your home.
But your home is at risk if you can’t repay the loan. If you default on your debt, the bank could foreclose on your house. Also, if you’ve taken equity out of your home and your house is now worth less than what you owe, you might be unable to sell without making up the difference.
4. PACE financing
The Property Assessed Clean Energy (PACE) program provides another useful option for funding solar panels.
PACE funding is made available though lender partnerships with local governments. This funding allows qualifying property owners to borrow for energy-efficient home improvements, including solar panels.
Guidelines vary by location, but approval for PACE loans isn’t based on your credit. Instead, the amount you qualify for is based on your property.
Also, the amount you borrow is paid back through property taxes over a period as long as 20 years. Payments due on the money you borrow are simply added to your annual property tax assessment.
There’s no down payment required, and homeowners might not need to begin paying for several months. If you sell your house before you completely pay off the project, the loan would transfer to the new owner.
While PACE loans are right for some, the Los Angeles Times warned last year that some homeowners accept PACE funding without understanding terms. Because the loans are secured by your property, your home could be at risk if you don’t pay.
5. Solar leases
Some homeowners also opt to lease solar panels. While monthly payments can be lower than the cost of a loan and panel maintenance is usually included, you won’t own the panels.
This means you won’t be eligible for valuable tax breaks or incentives. Plus, if you move, you’ll have to find a buyer who is willing to take on the lease payments and eligible to do so. This can make selling your home more difficult.
Should you invest in solar?
Because solar is an expensive investment, it’s important to consider the pros and cons as you shop for the most affordable financing. This means you should consider:
- Interest rates: How much will it cost you to borrow the money?
- Monthly payments: Will the payments be affordable on your current budget?
- Loan repayment period: How long do you have to repay what you’ve borrowed?
- Loan limits: Is there a maximum you’re allowed to borrow? Will you be able to borrow enough to cover the costs of your solar energy system?
- Prepayment penalties: If you want to repay the loan early, do you have the option to do so?
- Qualifying requirements: Are you eligible for the loan based on your credit score and income?
You should also calculate your payback period — that is, how long it will take to save enough in lower electric bills to make up for your initial investment. A solar payback calculator can simplify this. Simply input your property address and average monthly electric bill to see your potential savings.
For my husband and I, investing in solar was a great choice, but your situation might be different. Consider your options carefully, including your choices for financing, before going forward.
Interested in a personal loan?Here are the top personal loan lenders of 2018!
|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Payoff.
3 Important Disclosures for FreedomPlus.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
5 Important Disclosures for LendingPoint.
6 Important Disclosures for LendingClub.
All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.16% to 35.89%. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at time of application. The origination fee ranges from 1% to 6% and the average origination fee is 5.49% as of Q1 2017. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months or longer.
7 Important Disclosures for Earnest.
8 Important Disclosures for Avant.
* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.
** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.
|7.73% – 29.99%||$1,000 - $50,000||Visit Upstart|
|6.26% – 14.87%1||$5,000 - $100,000||Visit SoFi|
|6.99% – 35.97%*||$1,000 - $50,000||Visit Upgrade|
|8.00% – 25.00%2||$5,000 - $35,000||Visit Payoff|
|4.99% – 29.99%3||$10,000 - $35,000||Visit FreedomPlus|
|5.99% – 18.99%4||$5,000 - $50,000||Visit Citizens|
|15.49% – 34.49%5||$2,000 - $25,000||Visit LendingPoint|
|6.16% – 35.89%6||$1,000 - $40,000||Visit LendingClub|
|6.99% – 18.24%7||$5,000 - $75,000||Visit Earnest|
|9.95% – 35.99%8||$2,000 - $35,000||Visit Avant|