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Zero-down loans make going solar an affordable option.
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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 EnergySage 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.
Find out what solar panels cost in your area in 2024Have 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:
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 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.
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.
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.
EnergySage data shows that most homeowners pay off their solar loans in about seven to nine years, even if they take out a 20 or 25 year loan . With this in mind, some homeowners choose a longer loan term to keep their monthly expenses low and pay off the loan when they have the money available. It's important to check whether your lender charges a prepayment penalty before taking this approach.
When you take out a loan, you're eligible to receive the federal solar tax credit after you install your solar system, which allows you to claim 30% of your solar system's total cost on your taxes. If you use your solar tax credit to pay off some of your loan's principal, you'll have even less to pay in the long run. Some solar loans, known as re-amortizing loans, are structured to consider this and adjust your payment amounts based on when you are receiving your benefit from the tax credit. Even if you don't take specifically take out a re-amortizing loan, you can still use your savings from the tax credit to pay off a large portion of your loan's principal.
Different lenders offer different interest rates, and if you've shopped for a mortgage or a car before, your eye may be trained to seek out the option with the lowest interest rate. However, when shopping for solar loans, it's especially important to consider all the fees mentioned above – not just the interest rate – to ensure you get the best deal and the loan that works best for you.
Solar lenders often use origination or dealer fees to subsidize artificially low-interest rates for their loan products. In other words, they can charge you a lower interest rate because they charge you higher fees upfront. Those higher fees often cancel out any benefit the low interest rate was providing, which is why you need to factor in all of the fees in addition to your interest rate when figuring out what type of loan will save you the most money.
Dealer fees can be as high as 30% — sometimes even higher — and are often hidden in the financed price of the loan (be sure to inspect your quotes and ask installers what the differences between the cash price and the financed price is). So even if your interest rate is low, you'll be paying 30% more for your solar panel system, negating any benefit you may expect from selecting a loan with a lower interest rate. We encourage you to consider the total cost of financing of your solar panels rather than relying on the interest rate alone to evaluate your loan options. A loan with no dealer fee may have a higher interest rate, but in most cases, you'll pay less for your panels overall if you select this option, mainly because solar loans aren't usually held for the entire loan term (most homeowners pay off their loans in seven to nine years).
Solar loans come in different packages like any other financial option, with varying structures, terms, and conditions. Let's explore what to consider when finding the right solar energy loan:
You can categorize most loans into two general buckets: secured and unsecured loans. Secured loans require an asset that will serve as collateral for the loan – in most cases, that asset will be your home, which means your lender can foreclose on your home to pay themselves back if you default on your loan for any reason. Unsecured loans, on the other hand, don't require any collateral other than the solar equipment itself. Here are the major differentiating factors between the two loan types:
