Thursday, November 17, 2022

How Do Solar Loans Work

What To Look For When Financing Solar Panels

How Does Solar Financing Work?

When deciding how to finance solar panels, you may be nudged toward one type of lender or another. Do not rush into a solar loan. If you decide to move forward with the purchase, let your salesperson know that you plan to rate shop first. A difference of as little as 1% in interest can save you thousands over the life of your solar loan.

Here’s what to look for when you’re financing solar:

  • A low interest rate. The less you pay for the loan, the faster solar panels pay for themselves through energy savings.
  • Attractive repayment terms. Like Goldilocks, you’re looking for “just right” when it comes to personal loan repayment terms. If the repayment term is too short, your monthly payments may be too high. If the term is too long, you will end up paying more in interest than you need to. You want to find the shortest loan term you can comfortably afford to pay.
  • Perks. The best solar power financing perks include a discounted interest rate for autopay, easy online access to your loan information, and unemployment protection.

Solar Panel Loan Rates: How Do I Find The Best Rate

Confident you know the best type of loan for your situation? Now comes securing the lowest interest rate possible. Most solar loan interest rates, such as those from lender LightStream, range from 3.99% to 16.99%. But it is possible to get lower rates.

Here are a few tips to keep your rates as low as possible when financing a solar panel system:

  • Shop around: It’s usually best not to go with the very first lender you find. Spend some time shopping around and comparing rates. Most lenders will give you a free quote that’s good for a number of days while you compare offers from other companies. Have a plan before you start getting quotes.
  • Have someone co-sign: Having a co-signer on your loan especially one with excellent credit makes a lender far more likely to lower your interest rate.
  • Improve your credit score: The higher your credit score, the lower your interest rate will be. Small changes to your credit score before getting a quote can save you thousands in the long run. Here are a few tips to do so:
  • Pay back any old debts and credit card balances
  • Confirm your revolving credit limit is at its maximum
  • Be sure not to miss any monthly bill payments
  • Don’t open any new credit cards near or during the process of applying for a solar loan

What Are The Advantages Of A Solar Lease

  • Lock in your power prices going forward
  • Solar leases provide significant savings over your utility bill while eliminating pollution
  • Most leases are $0 down
  • Leasing is the simplest one-stop-shop solution for homeowners who want to go solar.
  • Leases include a power production guarantee so if the panels dont produce a certain amount of power your lease payment goes down.
  • The company maintains the system for the duration of the lease so if an inverter stops working, the company comes out to fix it.

Since the leasing companies are so large, they are able to take advantage of many special tax benefits that regular homeowners cant take advantage of, and these companies are then able to offer leases at a discount to residential buyers.

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Are Solar Loans Tax Deductible

The answer depends on the kind of solar loan that is taken out.

If the solar loan is secured by your home, then yes, all interest and fees on the loans are tax deductible. This is because home improvements such as solar installations are considered capital projects, i.e. those that increase the value of the house, are classified by the IRS as tax deductible.

Solar loans that are unsecured, on the other hand, are not eligible for tax deductions.

Solar loans secured by your home qualify for tax deductions. Image credit: The Verge

Is A Solar Loan Worth It

How Do Solar Loans Work? A Comprehensive Guide

In most cases, yes you stand to save a lot of money by taking out a solar loan.

One important reason is that when you buy a solar panel system whether through a solar loan or otherwise, you instantly increase the value of your home. A study by Zillow found solar panels on average add 4.1% to propertys value. For a $500,000 home, solar panels will add a cool $21,500 in value.

As for the total savings and cash flow from a solar loan, this depends on how you choose to set your loan up. Lets look at two different cases where a homeowner comes out ahead by taking out a solar loan:

Case #1: Cash flow-positive from Month One

In many cases, the homeowner will come out ahead from Month One. For instance, check out the diagram below generated by our solar panel calculator. It shows a utility bill customer who pays $199/month for electricity.

After purchasing solar panels with a 20-year zero-down solar loan, their utility bill will be just $19, while their loan repayment will be $132 – theyre coming out a net $48 ahead.

In the example above, the homeowner is essentially getting an asset that generates positive returns from Day One, all without spending anything out of pocket. For a homeowner looking for an instant return on investment, installing solar panels in this situation is a no-brainer!

Case #2: Aiming for maximum overall savings

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How Much Do Solar Panels Cost

Solar panels can be expensive. As of January 2019, the average solar panel cost was $3.14 per watt, and the average panel system size needed for a moderate-sized home was six kilowatts or 6,000 watts.

That means you can expect to spend about $13,188 on your system after accounting for tax credits. Solar panels are cheaper than they were a year or two ago, but thats still a lot of money. You can lower that cost by being more frugal with your electricity needs, but youll still need to spend about $10,000.

The good news about solar panel systems is that youd no longer have an electric bill, and in some cases can even sell power back to the utility company, resulting in a profit for you that may pay for the maintenance on your system.

The downside, however, is that depending on your location, terrain, and how often you have sunshine, a solar system may not generate enough power for your needs. Youll need to understand exactly how much power youre using and how much of a solar system youll need to match that. Then youll need to decide how youll fund what you need.

Solar Loans Vs Buying

A standard solar power system costs between $7 and $9 per watt. That brings the cost of a common 5kW system to an estimated $35,000.

For some customers, purchasing outright paying the entirety as a lump sum is an option. For many of us, however, a loan is necessary to make that kind of purchase possible.

Its worth bearing in mind that you may not need to borrow the entire amount needed for a PV system. If youve already got cash on hand a significant tax refund, or money left over from a home equity loan or remodel you may only need to borrow enough to make up the difference.

With credits, incentives, and net metering where your excess power is bought back by your utility company its possible to further defray costs while also shortening your repayment period .

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How Enerbank Solar Financing Works

Solar shoppers typically have a few different ways to finance their solar panel installation. People who are less concerned about maximizing their financial savings can sign a solar lease or PPA with a solar company. Homeowners who want to access the greater financial benefits that come from owning a system outright typically choose to buy it, either in cash or with a solar loan. These solar loans can come from a bank or a specialized lender.

EnerBanks solar loans are offered to homeowners primarily through their contractor network. When your installer creates a quote for a solar energy system installation, they often include a built-in financing option from a company like EnerBank .

Solar Loans: What You Need To Know

How Solar Financing Works

Want to finance your solar panel installation? Cash purchases and solar leases arent your only options. If you dont haveor arent willing to spendthe capital for a cash purchase but want to maximize the financial benefits of a solar energy system, the solar loan offers the best of both worlds.

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How To Choose The Right Solar Loan

There are a number of factors to keep in mind when considering the best solar loan for your needs, including:

  • Monthly payment amount: If you end up choosing a shorter loan term , your monthly payments will probably be higher. The overall cost of the loan will be lower, but it’s nevertheless important to consider the impact on your household budget.
  • Down payment amount: Depending on the loan you choose, you may or may not be required to put down an initial payment on the solar panels. Generally, larger down payments will mean lower interest rates and a more valuable loan overall.
  • Fees: Some solar lenders may charge prepayment penalties or monthly fees in addition to your monthly principal and interest payments. Always make sure you get fee information upfront, so as to ensure there are no surprises on your loan statement.

Is Solar Panel Financing Right For Me

Once you’ve signed on the dotted line for solar power financing, you can take advantage of a federal tax credit. Depending on where you live, you may also be eligible for state and local tax incentives.

The federal solar tax credit, sometimes referred to as the investment tax credit , allows you to deduct 26% of the cost of your solar energy system from your federal taxes. This incentive will step down to 22% in 2021 and expire for all residential installations in 2022. But, if you install a $12,000 system this year, your federal tax credit will be $3,120 .

Financing a purchase is a big decision. To work out whether a solar loan is the right decision, take a close look at your monthly budget and the amount you will save against the total costs. Put pencil to paper and figure the real cost of the loan, factoring in the tax credits and lower utility costs.

There aren’t many home improvement projects out there that help protect the environment through clean energy, reduce dependence on fossil fuels, lower the cost of living in your home, and immediately raise the value of your property. Solar power financing is definitely worth considering.

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Who Should Get A Solar Loan

At Smart Solar Energy, we recommend solar loans in several situations.

  • If you want to install solar panels but either dont have the money or want to invest it in other things, a solar loan is an excellent opportunity.
  • There are great tax breaks for using home equity loans to buy a solar energy system, which are most valuable to people with a tax appetite.
  • If you use a reputable solar installer with long warranties, that will help protect your investment.

The best time to install a solar energy system is right away, so you can start enjoying the electric bill savings. At Smart Solar Energy, we are happy to speak with customers about solar loan options and answer any questions. To learn more about installing solar panels on your house, request a free solar audit.

Finance Your Solar System With Solar Loans

How Do Solar Loans Work

Solar loans are rapidly becoming one of the most popular choices for financing solar today.

They frequently provide better overall savings than solar leases or different types of power purchase agreements.

The reason for that is the fact that with solar loans you own the system and can receive all of the available rebates and incentives, including the federal Investment Tax Credit of 30 percent. In addition, you dont have to pay for solar lease maintenance costs or profit margins.

Most importantly with the advent of zero-down solar loans , homeowners are able to immediately start saving on their power bill, while increasing the value of their home by the value of their panels.

Benefits of solar loans in a glance:

  • Ownership of your solar system
  • Loan is taken out to finance the cost of the system you pay it back over time
  • Many loans are $0 down allows you to start receiving benefits of solar power immediately
  • Youre entitled to any available incentives and rebates
  • There are a variety of providers to choose from for a loan

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Solar Loans From Utilities Or Local Governments

Theres a patchwork network of state and local governments across the country that offer solar loans for their residents. You can check out what loan programs are available in your area by visiting the Database of State Incentives for Renewables & Efficiency website. To find out whats available for you, click on your state , and then select solar from the horizontal menu.

How To Find The Best Solar Loan

Follow these tips to make sure you get the best deal on a solar loan.

  • Opt for a secured loan like a home equity loan if you can – providing collateral will earn you a lower interest rate.
  • Pay as much as you can as a down payment. This will lower the total amount of your loan, and less youll end up paying in interest.
  • Aim for zero penalties for early repayment the sooner you can pay your loans off, the higher your overall return.
  • If you receive a tax refund thanks to the solar tax credit, use it to pay down your loans and thus reduce future loan payments.
  • If maintaining positive cash flow is your priority, then aim for longer loan durations.
  • If overall savings is what you want, go for the shortest loan period that you can afford.
  • Most importantly, shop around. There are more solar loan providers and options available than ever before, so its worth doing some research to find the best deal.
  • You can read more tips on the Energy.gov website.

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    Buying A House With Solar Panels In A Lease Or Ppa

    As previously mentioned, leasing a solar panel system means the homeowner sends monthly payments to the company that installed the solar equipment. If the house youre interested in is leasing a solar panel system, its important that you find out more information about the lease terms and you understand the lease contract and deal. Feel free to ask about what monthly fees come with the system, and find out whether payments are escalating or not. If youre satisfied with the lease terms, and your personal financial situation can handle a solar system lease, the solar company can easily transfer your name to the lease after you pass the credit check. But if youre set on a house and not comfortable with the current lease, its possible that you might be able to negotiate with the previous owner to see if they will compensate you or pay off the remainder of the lease.

    How To Claim Your Tax Credit

    Solar Energy PACE Loans, Explained (2021)

    To claim the ITC you will need to file under IRS From 5695. Youll receive your tax credit the following year when you file your taxes for the year in which you installed your panels. If you dont qualify for the entire tax credit in the first year you can roll over the amount over 5 years.

    Check this video that walks you through the process for claiming the tax credit.

    In conclusion, the federal tax credit is 30% of your gross system cost and is a great opportunity to go green, create clean energy, and save money on home improvement. Now is the time to go solar!

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    Installing Solar Technology In Your Home Can Help The Environment Decrease Energy Costs And Increase The Value Of Your Home But Switching To A Renewable

    Installing a residential solar-energy system can cost tens of thousands of dollars, depending on its size, according to the Clean Energy States Alliance. While the cost of solar panels and solar-energy technology has been decreasing steadily over the years, not everyone can afford to pay the cost of solar upfront.

    But if you want to install a solar home-energy system, financing options such as a solar loan may be able to help.

    How Do I Get Paid

    The installer quotes the customer for a system and uploads the copy of the quote on the installer portal. After matching the quote details with the approved customers, Solar Victoria will advise the installer to go ahead with installation. After installation is completed, the installer will submit the STCs and electrical safety documentation against advice install. Upon verification, the installation will be approved by the Solar Victoria and the installer account gets credited with the approved payment in next pay cycle.

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    Home Equity Loan Or Line Of Credit

    If you have equity in your homethe current market value of your home minus your remaining mortgage balanceyou can also take out a home equity loan or a home equity line of credit . These can come with lower rates, which is a big advantage. Keep in mind that since your home secures the loan or line of credit, you can lose your house if you default on the loan.

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