When considering the switch to solar energy, the initial investment often overshadows the long-term savings. According to a recent survey by Forbes Home, cost concerns were the main obstacle holding American homeowners back from going solar. And it’s no surprise—solar energy systems cost thousands if not tens of thousands of dollars, so it’s understandable to be apprehensive about investing in solar energy.
Fortunately, there are options for financing solar panels that make it possible to benefit from solar energy savings without paying the hefty upfront cost. Many of these also offer little to no down payment, allowing homeowners to make the switch even if they don’t have a lump sum of savings to invest. This solar financing guide will review the options available so you can make the best choice for you and your home.
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Solar Financing Options for Homeowners
Cash
Some homeowners opt to purchase their solar energy systems with cash, forgoing the need for loans or payment plans. While this is a major investment, there are solid benefits to paying for a solar energy system with cash.
Pros
If it’s within your budget, purchasing your solar energy system outright is the best way to maximize the ROI of your solar energy system. You don’t have to pay interest as you would with other options for financing solar panels, plus you can take full advantage of tax credits and other available incentives.
Cons
The main drawback is the significant upfront cost. The average cost of a solar energy system is around $16,000, which many aren’t able to invest all at once. Also, as the owner of the system, you will need to pay for any necessary repairs or replacements that aren’t covered by warranty.
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Solar Loans
Solar loans work like any other type of loan—a lender loans you the money upfront, then you make payments for a fixed period until the system is paid off. A variety of solar financing options are available from solar providers and private lenders that are specific to solar energy systems, with the two main types being secured and unsecured loans.
Secured
Secured loans use your home as borrowing collateral. These typically carry lower interest rates than unsecured loans.
Unsecured
In an unsecured loan, the solar system itself is borrowing collateral. A higher credit score is usually necessary to qualify. Solar panel financing rates are higher for this type of loan, as the lender is assuming more risk.
Pros
Getting a loan to finance your solar system makes you the owner of the system, meaning you’ll be eligible to save money via government tax credits and similar incentives.
Cons
Interest rates are the main drawback to getting a solar loan. Also, as with other types of loans, you risk the loss of collateral—whether the home or the system itself—if you’re unable to keep up with payments.
Cash-Out Refinance or HELOC
A cash-out refinance plan or Home Equity Line of Credit (HELOC) borrows against your home equity. Cash-out refinance plans allow you to refinance your mortgage to cover the cost of purchasing and installing your solar energy system. HELOCs give you a line of credit that you can use as needed.
Pros
Both cash-out refinance plans and HELOCS are solar financing options that allow homeowners to obtain their solar energy system without having to invest the full amount upfront. Just like finance plans, the homeowner is considered the owner of the system and able to take advantage of tax credits and other incentives. They also generally have lower interest rates than unsecured loans.
Cons
Defaulting on your HELOC or cash-out refinance plan puts you at risk of losing your home. For HELOCs, variable interest rates make them less predictable than traditional personal loans. For cash-out refinance plans, you’ll need to pay closing costs, which are generally 2% to 6% of the total premium.
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Solar Leases or Power Purchase Agreements (PPA)
Just like taking out a lease on a car, leasing a solar energy system involves making monthly payments to the solar company for the use of the solar energy system. This type of plan comes in both traditional leases and power purchase agreements (PPAs). In both structures, the homeowner can take advantage of energy savings on their utility bill, but they do not own the system.
A PPA involves a third-party developer or solar provider installing, owning and maintaining the solar system on the homeowner’s property. The developer then sells the solar power generated to the homeowner, for a rate that is typically less than what they would pay the local utility company.
Pros
Renting allows you to obtain your solar energy system and save on energy costs for little to no money down. It’s also a good option for those who may not be staying in their current residence long-term. Another benefit is the owner of the system will be responsible for handling repairs or replacing faulty parts rather than the homeowner.
Cons
Since monthly payments won’t go towards owning the solar energy system, this significantly cuts into your ROI over time. Renters also aren’t eligible to receive solar energy tax credits and other incentives, as these are only available to those who own or finance their systems.
Plus, leases can run between 15 to 25 years, with early termination fees applying if you need to cancel before they expire. This can complicate the sale of your home, as potential buyers will need to agree to take over the lease.
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Solar Loan vs. Solar Lease and PPA
When deciding between leasing versus buying solar panels, buying is almost always the better option. Even those who believe they can’t afford a solar energy system should explore both options before committing.
Paying cash upfront for your home solar system maximizes both financial and environmental benefits, and it comes with the advantage of ownership if it’s within your budget. If not, low-interest loans are a strong alternative, preserving ownership benefits while balancing immediate affordability with long-term gains. Options like PPAs and leases, democratize access to renewable energy, making it feasible for more homeowners without significant upfront costs.
— Remi Akinwonmi, solar expert and clean energy advocate, Advisory Board Member
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Bottom Line
Solar panel financing options play a big role in how much solar panels save you on energy costs. Purchasing your system outright or finding a good low-interest loan is the best way to maximize your energy savings.
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THIS IS AN ADVERTIsem*nT AND NOT EDITORIAL CONTENT. Please note that we do receive compensation for any products you buy or sign up to via this advertisem*nt, and that compensation impacts the ranking and placement of any offers listed herein. We do not present information about every offer available. The information and savings numbers depicted above are for demonstration purposes only, and your results may vary.
Frequently Asked Questions (FAQs)
Is it a good idea to finance solar panels?
The answer varies on a case-by-case basis. For those who can swing the total cost of the solar energy system, financing adds interest costs, so it’s more expensive than buying the system outright with cash. However, when compared to leasing solar panels, financing is typically the better option. You can still take advantage of government tax credits and other incentives, plus your payments will be going toward owning the system rather than just renting it.
What is the typical interest rate on a solar loan?
Interest rates on solar panel loans generally range from 4% to 7%, but rates can go as high as 36% if you take out a personal loan. Rates will vary based on factors such as your lender’s terms, your credit score and any collateral you’re putting up. Secured loans, which use your home as collateral, will have lower interest rates than unsecured loans that only have the solar energy system itself as collateral.
What is the minimum credit score for solar financing?
To qualify for solar financing, you’ll typically need a minimum credit score of 600 to 650. There may be options for those with lower credit scores, but these often come with higher interest rates, large down payments or longer repayment schedules.
How are solar projects financed?
Most solar projects are financed through third-party lenders or through the solar company itself. It’s a good idea to ask your solar energy provider about in-house financing options, and then compare these rates against local lenders such as your bank or credit union. You can also shop for solar loans online to find lenders who offer loans specific to solar energy projects.
Another potential option is community solar projects. Per the U.S. Department of Energy, these are community-funded solar systems that generate solar energy and pass it on through the electricity grid. Households and businesses that pay a subscription fee can all benefit from the energy savings, even if they aren’t able to have their own system on their property.
