4 Solar Financing Options + Incentives
Ways to Pay for Solar & Savings
Solar is a great way to save money on utility bills and with all the financing options available it is a win all around. On top of that, it’s your direct connection to clean energy! According to the Department of Energy, each kilowatt-hour (kWh) of solar generation substantially reduces greenhouse gas emissions. Installing solar panels, on average, offsets 4 tons of carbon dioxide, the equivalent of planting 136 trees.
While a solar panel system can save you somewhere in the neighborhood of $1,500 annually, the many benefits of solar power don't come without initial upfront costs. Solar panels and installation costs vary depending upon the size of your roof and the degree of sun exposure.
Whatever your initial investment, you can take advantage of various solar financing options, federal and local tax credits, combined with energy bill savings that add up to a significant ROI. But to get to enjoy these savings, let’s shine a light on how you can cover your initial investment.
Four ways to pay for solar & panel installation:
- Cash Purchase
- Solar Loans
- Home Equity Line of Credit (HELOC)
- Solar Leases or Power Purchase Agreements (PPAs)
Let’s take a closer look at your payment and financing options to take advantage of the many benefits of solar power in your home.
1. Cash Purchase
If you have the funds available, paying for solar panels upfront with cash is the simplest and most straightforward option. Cash eliminates the need for loans or financing, and you get the benefits of solar energy without any ongoing payments.
Of course, a cash purchase requires a not inconsiderable capital commitment (we’re talking at least $20,000 for an average solar installation, and many solar systems run much higher). Even if you have the funds available, such a substantial outlay can minimize your ability to make other cash purchases.
2. Solar Loan
Many financial institutions offer solar-specific loans that allow you to spread out the cost of the panels over a fixed period, usually two to seven years, with regular monthly payments. Solar financing with longer repayment terms carry lower payments, but this option costs more in total interest paid out over time. Unlike home equity financing (see below), there’s no collateral required on solar loans. This means your property isn’t at risk if you miss payments, but it also means interest rates can be high.
Some lenders charge origination fees that can amount to as much as 10% of the loan amount. Many lenders offer pre-qualification, which lets you preview the potential loan rate, amount, monthly payment, and repayment term. As with any financial transaction, always read the fine print and shop for the best interest rates and terms before finalizing a solar loan.
3. Home Equity Line of Credit (HELOC)
HELOCs are a possible solar financing option if you have sufficient equity in your home. That’s because you borrow against your equity, the value of your home minus the amount you owe on your mortgage. It is, in essence, a second mortgage on your home, but you only pay interest on the amount you withdraw to finance your solar panel installation. Interest rates are usually adjustable, meaning the rate goes up or down depending on current market conditions.
Typically, you pay only interest on the amount you draw against your home equity; this is called the draw period and can last as long as 10 years. During the repayment period, which can last as long as 20 years, you pay back interest plus principal. You can choose to pay back the principal during the draw period, as well as pay off the line of credit early.
Most HELOCs are taken out for home improvements that increase the value of your home. Given that a solar installation increases home valuation by anything from 4-6%, you are already in a good position to get lender approval. Again, research into multiple lenders and HELOCs determines whether this is the best financing option to pay for your solar installation.
4. Solar Leases or Power Purchase Agreements (PPAs)
Solar leases and PPAs work very much the same; both financing options are third-party agreements with the solar provider that installs the panels on your property and then sells the generated electricity back to you. You pay a fixed monthly fee for the electricity generated by the panels at a predetermined rate, usually set anywhere from 10-30% below the electric utility rate, thereby totally avoiding the upfront cost of purchasing the solar system. At the end of the lease, you may have the option to renew or purchase the solar system outright.
These arrangements usually are long-term contracts, often with rates that increase over time and may not offer as many financial benefits as owning the panels directly. An additional disadvantage is that because you technically don’t own the solar panels, you are not eligible for any financial incentives or rebates. State authorizations also vary; consult your solar contractor for current regulations in your state.
Solar leases and PPAs were popular in the early days of the solar industry, when panels were both much more expensive and for early adopters. In most cases, owning your solar panel installation is a better financial option.
Solar Incentives
While technically not a financing option or a way to pay for your solar panel installation, various federal and state tax incentives and possible rebates from your utility provider lower system costs and make panels much more affordable.
The cost to install solar panels has dropped nearly 80% in recent years, making switching to renewable solar energy very affordable. Various incentives further improve affordability with the ability to deduct up to 30% off the total cost of solar panel installation.
Solar ROI
Before deciding which payment or financing option is best for you to go solar, conduct a cost-benefit analysis and consult with solar vendors, financial institutions, and/or energy consultants to determine the best way to pay for your panel installation.
TruHome Pros offers 5-star solar services for homes in Illinois, Wisconsin, and Michigan, including financing programs with competitive rates that make it more affordable than ever to take advantage of owning your solar system. If you prefer, we also offer leasing options.
Our highly affordable solar systems decrease your energy bills and increase the value of your property. We work closely with you to design and install solar panel systems that meet both your financial and energy comfort needs.
Contact us for a solar quote, and let us get to work on finding the best solar financing options for you and your family.