How to Finance Your Solar Energy System

Estimated read time 3 min read

Many homeowners choose solar power for a good reason: it’s a smart investment that raises your home’s value! 

Solar panels last over 25 years and can save you a lot on your monthly electricity bill. Imagine spending $150 on electricity every month – that’s over $65,000 in 25 years. But with solar, you can avoid most of that cost. 

Just like any home improvement, you want to think about your options before deciding. Solar financing, like loans and leases, helps you get solar panels without paying everything upfront. 

That said, solar power comes with a cost. To enjoy the savings, you need to invest in a solar panel system that usually costs about $25,000, excluding installation. Luckily, there are various ways to manage this expense and avoid a big upfront payment. 

Let’s look at each of them.

Solar Panel Loans

Solar panel loans are a smart way to finance your solar power system because they let you go solar and own the system without down payment at a lower cost than your current electricity expenses (especially with good credit). 

In simple terms, if you can afford your monthly utility bill, you can afford solar on your roof.

When considering solar loans, you’ll find fixed interest rates and no origination fees for personal loans. Some loans might offer variable payment options. These are unsecured loans that don’t require collateral. 

Energy efficiency and home improvement loans are also available. You can even enjoy lower rates provided you have great credit. With solar loans, you own the system and can receive rebates and incentives, but you’re responsible for maintenance and should consider the warranty.

Cash Purchase

Opting for an upfront cash payment is the most effective way to maximize your solar savings. If your system is designed to cover 100% of your electricity needs and you buy it outright, you’re essentially prepaying for 25 years of electricity. 

This shields you from future rate increases and makes you eligible for all the financial incentives and rebates tied to solar. Overall, you’re likely to achieve a better return on investment compared to investing that money elsewhere.

However, it’s important to note that solar isn’t inexpensive. To make a cash purchase, you’ll need enough funds to cover the system cost, which generally ranges from $20,000 to $30,000.

PPA and Solar Leases

While not as popular as before, these options played a significant role in the early growth of the solar industry. They are grouped together because they share a similar concept: third-party ownership (TPO). 

In both cases, a third party installs solar panels on your property and sells you the generated electricity at a predetermined rate. While there are minor differences between leases and PPAs, they are often treated similarly due to their common features.

With a lease/PPA, you’ll secure a fixed electricity rate for the next 25 years, typically around 10-30% lower than your current rate, as reported by the U.S. Department of Energy. 

In the past, these agreements included yearly payment increases, but recent trends favor fixed rates throughout the contract. Moreover, the maintenance and monitoring of the system are the responsibility of the third-party owner.

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