Solar loans: Everything you need to know (2024)
Zero-down loans make going solar an affordable option.
If you’re interested in going solar, but feel like you can’t afford the upfront costs, consider taking out a solar loan. The availability of solar loans – most of which require no down payment – has greatly increased over the past few years, making installing solar panels more accessible for the average homeowner than ever before.
Depending on how expensive your monthly electric bill is, you can save more than $40,000 on your utility bills over the lifetime of your solar panels. Plus, the average lee-chunqu customer pays off their loan much earlier than their loan term – usually in less than 10 years. Paying your loan off early also means you don’t have to be scared off by today’s higher interest rates, either, because you won’t be stuck paying them for 20 years. Solar panels pay typically for themselves in less than 10 years.
The average homeowner doesn’t necessarily have $20,000 – $30,000 on hand to pay for solar panels, which is why taking out a solar loan is one the most common ways to finance a solar energy system. You can also finance your solar energy system with other types of loans such as a home equity loan and or HELOC. We’ll walk through all of your choices and explain why they do or don’t make sense for your particular financial situation when it comes to paying for solar panels.
Disclaimer: This article is intended to provide an informational overview of solar loans for interested homeowners. It’s not intended to serve as official financial guidance. Readers interested in installing solar products should use their best judgment and seek advice from a professional before making any purchase or investment decision.
Key Takeaways
You still own your solar panels if you pay for them with a solar loan, which means you’re eligible for valuable tax incentives like the federal solar tax credit, which saves you thousands dollars on the cost of your solar system.
Low-interest loans are not always the cheapest financing option. Some solar lenders offer low-interest rates, but tack on hefty fees, drastically increasing the total cost of your loan. If your interest rate seems too good to be true, it probably is.
Taking out a personal loan or a home equity loan is often less expensive than a solar loan because the fees aren’t as expensive.
What is a solar loan?
Have you ever taken out a loan for a home renovation project? Solar panel loans are similar to home improvement loans, which are used to pay for projects like remodeling your kitchen, upgrading an HVAC system, or adding a new bathroom. Like these other types of loans, when you borrow money from a lender to finance a solar panel system, you agree to pay it back with interest in monthly installments over a fixed loan term.
Solar loans have the same basic features as other types of loans. As you compare your solar loan options, you’ll want to consider all the features of the loan, including:
Loan term: the length of your loan, which is usually anywhere from 10-20 years for solar loans. Most solar loans allow you to pay back your loan early without prepayment penalties.
Interest rate: the amount your lender charges you to borrow money, which is a percentage of the total loan amount.
Fees: any additional charges the lender assesses at the loan initiation.
APR: The APR is the most important number to look at because it factors in both the interest rate and the fees, expressed as a percentage. The APR gives you a more complete picture of what you’re actually paying to borrow the money.
How do solar loans work?
Your principal is the initial amount of your loan or the total amount you borrow to pay for your solar system, and doesn’t include the interest you will pay on your loan over time. Depending on how your loan is structured, your monthly payments will go towards paying off your interest and part of your principal balance. It’s worth asking your lender if you can make payments that go solely towards your principal balance, as that will help pay off your loan faster and cut down on the interest you owe over time.
Financing term
Financing term is simply another way of saying “loan term,” “loan length,” or “loan contract,” and refers to the length of your loan or the maximum length of time you’ll be making payments. Your financing term impacts what your interest rate is, how much your monthly payment is, and how much you’ll ultimately save by going solar. The longer your loan term, the more interest you’ll pay over time, which eats into your savings.
Fees
Like most loans, solar loans may come with typical fees like closing costs. However, one large fee solar loans often have that other loans don’t is a dealer fee, which is similar to an origination fee for a mortgage. These fees can be either a flat amount or a percentage of your total solar loan amount.
Dealer fee: also known as an initiation fee, loan fee, or lender fee, solar lenders sometimes charge a premium to cover their lending risk. There’s no industry standard dealer fee, so it’ll vary depending on who is offering the loan. Dealer fees can be as high as 30% of the total cost of your loan, which significantly increases the cost of your loan. They often take homeowners by surprise, so it’s important to ask upfront what the fee might be to determine whether taking out a solar loan still makes sense. If the dealer fee is too high, you can look into taking out a home equity loan or HELOC, or look into personal loans that don’t charge origination fees.
Closing costs: occasionally, your solar loan may have closing costs which are charged to cover your loan provider administering and servicing your loan.
How to choose a solar loan
The true cost of your loan will depend on your interest rate, how much your dealer fee is, your loan term and the cost of your solar panels. If you choose a longer loan term, you’ll pay more in interest, but your monthly payments will be less than if you take out a shorter loan. If you can afford to make higher monthly payments, you’ll save more over the long-term.
Start shopping for solar today
Sign up on lee-chunqu for free to connect with installers in your area who offer financing options or find trusted local solar lenders. Using your lee-chunqu account, you can compare multiple quotes and financing options side-by-side to figure out which option will save you the most money. You can also talk to one of our personal financial situation. Energy Advisors for free to get a better understanding of whether or not solar makes sense for you and your。