Solar is a great investment for homeowners, as it will not only save you money on your utility bills, but it will also help the environment by producing clean energy.
Solar panels can be purchased outright or financed through a variety of different financing options. The best choice for you will depend on your budget and preferences.
Cost
When it comes to financing a solar energy system, there are several options available. These include a cash purchase, a loan, or a lease or PPA.
Paying for a solar system in cash is often the most cost-effective option. However, it is not ideal for many homeowners and can require a substantial upfront investment. This is especially true if the homeowner does not have sufficient equity in their home to secure a loan.
A solar loan, on the other hand, can be an effective way to spread the cost of your new system over time. These loans are specifically designed for solar power users and come with a variety of advantages.
In addition to lowering your out-of-pocket expenses, solar loans are also typically cash flow positive from month one. This is because you’ll save more than you’re paying on your loan, making it easier for you to manage the amount of money you pay back each month.
Another benefit of using a loan for your solar system is that you can take advantage of the federal solar tax credit, which is worth up to 26% of your overall solar panel cost. This incentive will drop to 22% in 2023 and expire in 2024, so it is important to plan ahead and take this tax break into consideration.
A solar loan is a viable financing option for many homeowners, but it is crucial to shop around for the best rate. It is also a good idea to look at the terms and conditions of your chosen lender before signing on the dotted line. This can help you make the most informed decision possible.
Tax Incentives
The cost of solar financing can be quite expensive, but there are a few tax incentives available to help offset some of the upfront costs. These include federal, state, and local programs that allow homeowners to deduct a portion of the cost of their solar energy system from their taxes.
The most popular and best-known incentive for solar is the federal investment tax credit (ITC), which allows homeowners to claim 30 percent of the total costs of their solar systems as a tax deduction. The credit is a great way to get the most out of your solar system and is a big reason why solar adoption is on the rise in the U.S.
This credit is available until 2032, when it will step down to 26 percent. Fortunately, SEIA was successful in advocating for an extension of this credit to December 2022.
Commercial taxpayers can also choose a production tax credit for solar instead of an ITC. The credit is currently at a rate of 2.6 cents per watt, with an additional 1.5 cents available for meeting new labor standards. Treasury will issue guidance on this credit in two months.
In addition to the ITC, many states have their own solar tax credits, which can be stacked with the federal tax credit for an even bigger discount on your tax bill. For example, South Carolina’s tax credit for solar energy allows residents to claim 25 percent of their solar costs as a credit on their state taxes.
Additionally, many states have net metering laws, which permit solar owners to receive credits for the electricity they feed back into the grid. This reduces the payback period for solar systems, and it makes them more attractive to consumers who want a quick return on their investment.
Financing Options
When it comes to financing a solar system, there are a number of options. For example, many solar companies offer their own financing programs or partner with lenders who specialize in offering loans. These can be a great option, as they usually offer lower interest rates than a personal loan or home equity line of credit (HELOC), and the funds are often available right away.
In addition, some homeowners may be able to add the cost of a solar system into their mortgage. For example, a HomeStyle energy mortgage from Fannie Mae or the Federal Housing Administration allows you to add the cost of solar into a new or refinance mortgage.
Another way to finance a solar system is through a lease or power purchase agreement with a third party. Typically, the company owns the panels and sells you electricity at a discounted rate.
These solar leases and PPAs have become more popular over the past few years, as they provide homeowners with immediate savings and don’t require any upfront cash outlay. They also give you the benefit of not having to worry about monitoring or maintaining your solar system on your own.
If you’re interested in going solar, check out our partners at SaveOnEnergy to learn more about how it can fit your lifestyle and energy needs. They can help you search, compare and sign up for the right energy fit for your home — all at no cost to you.
If you decide to finance your solar system with a personal loan, be sure to shop around. You can do this with Credible, which lets you compare prequalified rates from multiple lenders in two minutes without impacting your credit score.
Cash Purchase
Purchasing solar panels with cash is the best way to maximize your financial returns and get the biggest upfront savings. However, paying cash requires a significant amount of money upfront, and it’s not possible for most homeowners to save up that much.
Instead, they opt for a solar loan, lease or PPA (power purchase agreement). All three of these options allow you to save money immediately on your energy bills while avoiding the high up-front costs associated with installing solar.
Solar Loans
Solar loans are a popular option for homeowners who have good credit and can afford to make regular payments over a long period of time. They are offered by many solar providers and can be obtained with or without a down payment, depending on your situation.
The interest rate you pay depends on a number of factors, including the length of your loan. Most loans range from 10 to 20 years, but some lenders offer longer loan terms of up to 30 years.
You’ll also need to factor in a buy down or financing fee, which can help you lower your interest rate for the life of the loan. The fee is typically either a flat fee or a percentage of the total loan amount.
In addition, a solar loan may be eligible for the federal solar tax credit, which will provide you with a deduction on your taxes for 30% of the cost of the system and installation, but only for the year it was purchased. This credit disappears in 2023, barring new legislation.
A solar lease or PPA will not add to your home’s value, so it’s not a good option for most homeowners. It will also cost you thousands of dollars to terminate your lease early, which can be a hassle for anyone who wants to sell the house.
Lease or PPA
There are many solar financing options, and one of the most common is a lease or PPA. These are agreements where a third party installs solar panels on your roof and sells you electricity produced by the system at a set price. These prices are usually about 10 to 30 percent lower than your utility bill.
With a lease, you’ll pay a predictable payment for the duration of the agreement, which typically lasts between 15 and 25 years. At the end of that time, you can either let the company take the panels back or renew your contract. If you want to stay with the solar company, you can also purchase the panels for market value at the end of your lease.
If you’re not sure which option is best for you, start by obtaining quotes from several solar companies and weighing the financial benefits of each. Some companies offer prepaid leases, zero money down arrangements, free installation, and more.
While leasing and PPAs are less popular than they used to be, they still offer many advantages for homeowners. They can save you a lot of money in the long run, and they can help you make use of available tax incentives.
Another benefit of solar leases and PPAs is that they’re transferrable to new home owners. This can help increase the property value of your home. However, you should keep in mind that these systems don’t qualify for the residential investment tax credit (ITC),* which offers a federal tax credit for solar installations.
In addition to being a more affordable option than buying a solar system, leases and PPAs can also help you avoid the yearly price spikes associated with power prices. Some contracts even include an escalator, which increases your payments each year.
