Is Financing Solar Panels Worth it?

Solar panels cost around $18,000 on average in the US. The prices will vary by state and the quality of solar panels installed though.

The total cost of solar panel installation may go up to $40,000. Saving a large amount of money for solar investing is challenging.

Therefore, you can consider financing solar panels and see if it’s worth it.

Why Invest in Solar Panels?

You’ll be contributing to the national cause of achieving the highest level of renewable and green energy initiatives when investing in solar panels.

Investing in solar panels comes with several benefits for you, the community, and the government collectively.

The foremost benefit of investing in solar panels is to save energy from expensive and dirty sources like coal power plants. It means you’ll be participating in an environment-friendly investment.

Then, you can save money through local and federal tax credits. There are different rebates and incentives on offer for investing in solar panels as well.

Therefore, investing in solar panels is a win-win situation for you and society.

Is Financing Solar Panels Worth it?

Once you know the benefits of installing solar panels at your house, it’s time to arrange the money to buy them. As they cost high, you’re likely to go for a financing option.

You’ll need to consider a few key points before arranging financing solar panels.

Initial Cost

When choosing to finance solar panels through a loan, you don’t need to worry about the initial cost of the project.

Without financing, you’ll need to pay all the money upfront in cash. Alternatively, you may have to rely on solar panel rentals without ever owning them.

Therefore, if you don’t have savings for purchasing solar panels, financing is your best option as it is a costly project.

Loan Qualification

Then, you must consider the qualification criteria for the available financing options. Qualifying for different loans comes with different requirements.

For instance, if you want to apply for a personal loan, you’ll need a good or excellent credit score. However, these unsecured loans often do not require collateral.

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Similarly, analyze other loan qualification points like your gross annual income, existing debt, credit history, and so on.

Interest Costs

A clear disadvantage of financing solar panels is to incur interest costs. Since solar panels are expensive, you may end up paying a large amount in the form of interest costs when using a loan.

Also, financing options for solar systems will usually offer longer loan terms. Although these loan terms lower monthly installments but accumulate more interest in the long term.

If you choose to buy a solar system with cash, you can save a significant amount from interest costs.

Tax Credit

Governments around the world are encouraging people to invest in green energy systems including solar panels.

The IRS also offers a tax credit on qualified solar panel expenses. The existing tax credit rate is 26% for solar panels installed before 2022.

This tax credit will again be increased to 30% for solar panels installed between 2022 and 2032. However, you must meet the tax credit qualification criteria.

Incentives

Apart from the federal tax credit, you can enjoy different incentives from state and local governments as well.

Most states offer sales tax rebates on solar energy investments. You can also enjoy property tax exemptions in some states with solar installations.

Then, you can qualify for solar renewable energy certificates (SRECs). Although difficult to qualify, you can earn good rewards through SRECs.

Finally, most states allow net metering as an incentive for customers to generate energy from renewable and green sources.

Energy Savings

Finally, analyze if installing a solar system will bring you energy savings in the long run. Compare the cost of electricity in your state and also forecast the prices for the coming years.

Then, compare the benefits of installing solar panels and consider the financing option as well.

How to Finance Solar Panels?

Buying solar panels with cash is a challenging task. If you don’t have that much money, you’ll need to finance the purchase.

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Here are a few options for you to consider when financing solar panels.

Personal Loan

Personal loans with fixed interest rates are the most common options to finance solar panels. These loans offer easier access to financing options and come with fixed monthly payments.

If you can qualify for a personal loan with a good credit score, you’ll get lower interest rates as well. Moreover, you can get a personal loan of any amount depending on your financial strength.

Personal loans are often unsecured and approved quickly. Then, the repayment terms on these loans are shorter.

The drawback of personal loans is that qualification is harder. You need an excellent credit score to qualify for most personal loans and get good interest rates on them.

FHA Loan

You can use the FHA 203(k) mortgage loan for home improvements and energy upgrades. These loans come with easier qualification criteria than personal loans.

Since you get longer loan terms on FHA loans, your monthly installment amounts will be lower. These mortgage loans often come with maturity periods of 15 and 30 years.

You can combine an FHA loan to refinance your existing mortgage plan and also adjust the remaining amount to finance the solar panel expenses.

The drawbacks of an FHA loan are that you need a contractor to fulfill the task quickly. Then, you must complete the installation and spend the approved amount on solar panels and house improvements.

Also, FHA loans may come at a higher interest rate as compared to other loans.

Home Equity and Line of Credit

If you have built home equity by repaying a significant proportion of the home mortgage loan, you can use a home equity loan.

A home equity loan comes with a fixed interest rate and fixed loan term. You can enjoy similar benefits with a home equity loan to that a personal loan. As it is backed by an asset, the lenders will usually charge lower APRs.

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A home equity line of credit (HELOC) is a revolving loan with a variable interest rate. It gives you the flexibility of easier access and paying interest for the amount you withdraw only.

The drawback of these options is the unavailability of home equity for home buyers with a recent mortgage loan. Also, the approved amount may not be sufficient to purchase solar panels.

Contractor Financing

You may also contractor financing from the solar company itself. Although not all solar companies offer to finance, it’s a common practice with large companies.

A similar choice for you is to get solar panel financing through private lenders like “ezSolar” and “LightStream”. However, often you cannot choose a solar company yourself if you choose a third-party lender.

Qualification for contractor financing is often easy. Also, these loans come with longer terms meaning lower monthly installments.

Private lenders and contractors offering to finance usually do not offer prequalification. Also, their loan terms are longer meaning higher accumulated interest costs for you.

Solar Lease Vs Purchase

Instead of purchasing a solar panel system, you can choose to rent it. A lease option will work fine for you if you do not want to purchase it.

A solar panel lease does not save you interest costs though. Also, you’ll never own the solar system even after paying rentals for a long period.

Consider the lease option if you want to use it for a short time and move around quickly. Otherwise, you may convince the new tenant/buyer of your house to renew the lease term.

You can also save money on maintenance costs with solar rentals although most companies offer fairly extended warranty periods these days.

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