How to Obtain Financing for Solar Panels?

Jul 27, 2022

6

min read

S

olar panels have several benefits, including a low carbon footprint, a reduction in utility bills, energy independence, increased property value, and more. Once you've chosen to go solar, the most challenging step is financing your solar panels.

Despite several benefits, the biggest downside of solar panels is their high initial cost. While the price will offset in the future, financing the expensive solar panel system can be a hassle. But, here is the complete guide on how to get financing for solar panels.

How Much Do Solar Panels Cost?

Before financing, it's crucial to understand the cost of a solar panel system. The price depends on several factors, including the type, model, efficiency, the size of the home, and how much electricity you consume. The average cost of solar panels is estimated to be about $16,000 and may vary from $3,500 to $35,000, depending on the make and model.

We can break down the total cost of a solar panel system into three parts; cost of solar panels, installation cost, and maintenance cost.

Solar Installation People — https://www.freepik.com/vectors/maintenance

Cost Of Solar Panels

The cost of solar panels covers the highest price of the system. There are three types of solar panels, and their cost is as follows:

Monocrystalline solar panels: $1 to $1.50 per watt
Polycrystalline solar panels: $0.70 and $1 per watt
Thin-film solar panels: $1 to $1.50 per watt

Installation Cost

The installation cost includes the cost of the solar inverter, labor charge, electrical panel, wiring, and power meter. It can cost anywhere between $6000 and $9000. You can also save money by installing it yourself. The solar inverter can cost anywhere between $1,000 to $2,000.

The on-grid or off-grid solar panel system also determines the cost. In an off-grid solar panel system, you would require large batteries to store the electricity. The batteries will increase the price, whereas, in an on-grid system, the solar panels connect to the primary power grid. This will eliminate the storage cost and even pay you for the extra electricity generated.

Maintenance Cost

Minimal maintenance is required to maintain solar panels. You must periodically monitor and clean the panels. You should also regularly inspect the system to ensure its safety. The maintenance cost ranges from $300-$700.

Apart from this, the cost also depends on the location, local rebate programs, and tax benefits offered in the region.

Solar Panels Tax Benefits

For installing solar panels, the government has offered tax benefits and subsidies as part of its initiative to promote green energy—this aids in lowering the price of solar panels. The federal government provides 26 percent of the tax credit on solar installations from 2020 to 2022. The tax credit will be 22% if installed in 2023 and will phase out in 2024 unless the government renews it.

To be eligible for the credit, you must fulfill the following requirements:

Solar panels system must be installed by 31 Dec 2023.
The system must be installed on primary or secondary residences.
You must own the system. Third-party ownership such as solar leasing and power purchase agreements are not eligible.
The solar system must be new, not second-hand.

Local Solar Rebates

Apart from the federal government, there are local incentives available. Several local programs offer a rebate, loan, grant, and tax exemption for solar panel installation. For instance, a utility company in Minnesota provides a flat refund of $500 for solar panel installation.

Several states have such programs available. You can check the Database of State Incentives for Renewables & Efficiency to see what's available in your area or contact your utility company.

Man and Woman Getting a Rebate — https://www.freepik.com/vectors/incentive

Local solar rebates will be subtracted before applying the federal government tax incentive. Suppose you bought the system costing $20,000 and got a $500 refund, then 26% of 19,500 will be 5,070. After both incentives, the system will cost $ 14,430.

Also read: Why You Should Or Shouldn't Consider Solar Panels For Your Home>>

Ways To Finance The Solar Panels

Solar panel financing options primarily fall into three categories: cash, solar loans, and solar leases/power purchase agreements.

Cash Purchase

A cash purchase is the best way to finance the solar panel if you have extra money or savings. You are paying 25 to 35 years of electricity bill through the cash purchase. This means you don't have to worry about the electricity bill, changing rates, or rising inflation.

However, the biggest problem with paying for solar panels with cash is that they are costly. The solar system cost at least $10,000 to $15,000 minimum, and the amount is not feasible for many to pay cash upfront.

Solar Loans

Since solar panels are expensive, you can borrow a loan from a lender to finance them and eventually pay them back later with the utility costs you saved.

Pros

Low upfront cost
Quick approval
Tax incentives

Cons

Comparatively low rates
Requires collateral

If you are wondering where to get solar loans, then here are our top picks:

Dividend Finance

Dividend Finance is a top choice for solar loans as it offers a wide range of products at flexible loan terms customized according to your needs. It provides loan options for PACE (Property Assessed Clean Energy), EmpowerLoan, PACE loan, and Solar + Storage. Apart from residential lending, it also allows business owners to finance solar panels and other energy-efficient upgrades on privately owned commercial property. Furthermore, Dividend Finance has partnered with over 700 solar installation companies to finance homeowners in their solar installation. It operates through a partnership with Keybank.

Lightstream

Lightstream is a national consumer lending division of SunTrust Bank that offers solar financing as part of home improvement loans. It provides hassle-free solar loans at low-interest rates, flexible terms, and no fees. You don't have to deal with prepayment penalties, appraisal, or other fees. The best thing about Lightstream is that you can easily fund your entire project at once. This way, you can tackle your solar and other home improvement projects simultaneously.

Ezsolarloan

‍Ezsolarloan offers a wide range of solar options at affordable rates so that you can seamlessly harness solar power. Popular solar loan products include energy improvement loans, fixed-rate term solar loans, and jackpot solar loans. The best thing about Ezsolarloan is that it finances the entire solar project with no hidden fees, out-of-pocket costs, instant approvals, and any appraisals. It operates through partnerships with the community 1st credit union.

Personal Loans

Personal loans are the best way to finance solar panels. It is an unsecured loan. Thus, you do not have to put your house or the solar panels collateral for the loan. It also comes with fixed interest rates and monthly payments. The rates are based on your credit score, income, credit profile, and more. Also, the repayment terms range from two to seven years.

Pros

Short repayment terms
Quick approval
No collateral

Cons

High rates

Personal loans can be the best fit if:

You want quick installation of solar panels
You have good credit scores qualifying for low APR
You want to quickly repay the solar debt
You don't want to keep your house as collateral

If you are looking for some best personal loans for solar installations, then here are some of our best picks:

Upgrade

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Upgrade is an American neobank headquartered in San Francisco, California. It offers personal loans up to $50,000 making it ideal for accessing funds for smaller loans to fund the solar project. It offers low fixed rates, affordable monthly payments, and no prepayment fees. These personal loans can be used for home improvement projects, including solar installation. Also, you can customize your monthly payment that fits your monthly budget and schedule.

Lending Club

Lending Club offers home improvement personal loans that can be used for home renovations, repairs, and upgrades. The best thing about getting a loan from a lending club s that you can get your loan in a few days with no collateral, appraisal, or costly refinancing required. You can borrow up to $40,000 through a quick and easy online application, and the eligibility is determined based on your credit history, not the fluctuating value of your home.

Lending Point

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Lending Point Personal loans are best for financing your solar projects since they are funded quickly and available to people with fair and bad credit. You can borrow a loan amount of up to $36,500. If approved for the loan, you may get the fund the same day; otherwise, the next day. Thus, the Lending point can be a great option if you are looking for quick solar financing.

Rocket Mortgage

‍Rocket Mortgage offers home improvement personal loans to fund your solar installations. You can easily qualify for the loan with even a low credit score. The borrowing limit is set at $45,000, and there is no prepayment penalty for the loan. Also, you can enjoy same-day approval and same-day funding.

Equity Financing

If you have built up home equity, you can use it to finance solar panels. You can either consider a home equity loan or HELOC.

Equity loans have fixed interest and fixed repayments. They are second mortgage loans. On the other hand, HELOCs are like credit cards that give you a line of credit you can borrow against. But, HELOCs have variable interest rates.

Pros

Low rates
Tax benefits

Cons

High rates
Longer repayment term
Your home is collateral

Equity financing can be best if:

You have built up enough equity and want to use it.
You don't mind getting second mortgage loans.
You want longer repayment terms.
You don't have a good credit score.

Here are some of our recommendations to get your equity financing for solar installations:

Mutual of Omaha Mortgage

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Mutual of Omaha Mortgage offers a refinancing option to your mortgage such that you can cash out your home equity. It provides personalized service and custom quotes so you can easily tap out the home equity for solar installations. The main highlight is its mobile app. You can easily apply for a loan from anywhere, calculate estimated loan costs, securely send loan documents, and contact the loan officers. This helps remove the pain points from visiting the office and stay updated with the loan status.

Loan Pronto

Loan Pronto offers a home equity line of credit (HELOC) with lower payments and flexible payment options. You can borrow up to 89.99% of your home's value and use as much or as little of the credit line as required. With a Loan Pronto loan, you get an interest-only period of 10-15 years with an additional 10-15 years to pay off the loan.

AmeriSave

Amerisave offers you a home equity line of credit (HELOC) so that you can let your home's equity work for you. It assesses the current value of your home and determines how much you can borrow. After being approved, you have ten year draw period in which you can pay down and redraw as many funds as you need. You only need to pay interest during these periods and repay the loan later in the repayment period (11-20).

Home Improvement Loans

FHA 203(K) loan and Fannie Mae Homestyle renovation loan can help you finance the solar panels as a home improvement project. These are loans with a full mortgage term of 15 to 30 years.

Pros

Low-interest rates
Easy approval

Cons

High rates
Longer repayment term
FHA mortgage insurance
Installation within 30 days of loan approval

Home Improvement loans can be the best fit if:

You don't have enough equity for the home equity financing.
You want to install the solar panels as soon as possible.

If you are wondering where to get home improvement loans, then here are some of our recommendations:

Loan Depot

Loan Depot is one of the biggest names in the mortgage market. It offers a wide range of home renovation loan options, including FHA 203(K) renovation loans, VA renovation loans, and Fannie Mae HomeStyle home improvement loans. You can easily apply for a loan online at comparatively lower rates. The best thing about loan depot is its digital application process that simplifies your loan application process and keeps you updated about your loan status.

New American Funding

‍New American Funding provides FHA 203(K) home renovation loans for anyone planning home renovations and upgrades. The loan comes in two varieties: streamlined and standard loan. The streamlined loan has a borrowing limit of $35,000, whereas the standard loan has a minimum borrowing limit of $5,000 with no maximum limit. The best thing about New American Funding is that the loan officers will work with you to get the loan that best fit your needs and budget.

Solar Company Financing

The solar companies can also offer you solar loans to finance the installation. You can borrow the amount from the contractor quotes, and interest rates are usually low. The terms can range from 10 to 25 years. However, it may depend on the companies.

Pros

Convenience
Low rates

Cons

Long repayment terms

Solar company financing can be the best fit if:

You want convenience and don't have time to look for other financing options.
You want low rates.

Here are some of the best solar companies offering solar financing:

Sun Power

Sun Power is one of the leading solar energy companies offering a wide range of solar services, such as manufacturing, installations, and financing. It provides best-in-class digital solutions that empower homeowners to design and manage their solar systems. It has recently launched SunPower financial, which offers solar leases and loans to finance your solar projects. Thus, it takes care of your entire solar project from the financing to installation such that you can easily install solar in your home with less cost and effort.

Sunrun

Sunrun is one of the biggest residential solar companies in the U.S., offering best-in-class equipment and the industry's best financing options. It provides solar panels, batteries, and installation services at lower upfront costs and the lowest quote possible. Apart from this, it offers daily system monitoring, maintenance, repairs, and comprehensive insurance. It also provides 25 years of warranty, including free equipment replacement and system repairs.

Sunnova Energy

‍Sunnova Energy offers a wide range of solar options customized to fit any home and budget. It provides solar panels, batteries, and roofing services at low interest and down payments. You can request a free quote, and a sales representative can help you find grants, tax credits, and financing options. It provides ten-year roof warranties, a 25-year system warranty, 24/7 monitoring and maintenance, and replacement service.

Solar Lease And Power Purchase Agreements

You can lease the solar panel system if you don't want to purchase them. A solar lease is when the solar installation company owns the system, but you pay monthly payments to use them; the solar panels can be leased for 20 to 25 years. A power purchase agreement (PPA) is similar to leasing, but instead of paying the rent of the solar panels, you pay for the energy generated by the solar panels lower than the standard rate.

Though solar leasing and PPA have declined in popularity in recent years, they played a significant role in the growth of solar panel systems in their infancy. The big idea behind solar leasing was that it was too expensive to own, so you could rent them.

But, since solar panel costs have been decreasing and the government also provides tax subsidies, solar leasing may not be a viable option for many. But a solar lease and power purchase agreement can be the perfect option if you are constantly moving or too busy to maintain the system.

Pros

No investment
No need to maintain and monitor the solar panel system

Cons

No tax subsidy and benefits
No added value to the house

Solar leases and power purchase agreements can be the best fit if you:

You constantly move house.
You don't have time to maintain and monitor the solar panels.
You don't want to invest in solar panels but want to enjoy the benefits.

If you are wondering where to get the solar lease and power purchase agreement (PPA), here are some of our recommendations:

Connecticut Green Bank

The Connecticut Green Bank offers the Green Bank Solar PPA, through which you can install solar without any investments. It provides the program for a 20-year term, and you can buy the solar system at fair market value after the period. You can make PPA payments through an assessment placed on your property by your municipality. The true-up process allows you to pay only for the electricity generated. The best thing about the program is that.

Third-party solar system owner maintains the system and manages all equipment and warranty issues so that you can rest assured.

Biostar Renewables

Biostar renewables develop, finance, owns, and operate solar plants across the country. It employs a variety of financial products to fund your solar projects, including PPA, solar lease, and solar as a service. Biostar offers long-term PPA agreements with standard years ranging from 15-25 years. BSR owns the system in this agreement and sells produced power to the end user at a previously agreed-upon price. It also offers solar leases for 5-10 years, where you have to pay monthly payments to the company.

‍Also read: Top 10 Solar Industry Lenders

Conclusion

Financing solar panels can be tricky since the upfront cost is expensive. But, there are several financing options, including solar panels loan, cash and solar lease, and power purchase agreements. Solar panels are long-term investments. Thus, analyzing which financing option fits you best is essential. It would help if you considered several factors, including tax incentives, interest rates, and repayment terms, when deciding how to finance solar panels.