Common Solar Loan Types
According to our Marketplace data, about two-thirds of EnergySage customers request solar loan information as part of their quotes when considering solar. Before diving into solar loan fees, its essential to understand the two main types of solar loans available if you choose to finance your solar investment: secured and unsecured loans.
Each of these loans has different benefits to consider and will likely have different interest rates and fees associated with it. A secured solar loan usually requires collateral like your home, so if you fail to make payments the lender can place a lien on it. An unsecured loan usually wont require collateral, so theres more risk the lender is taking thus, these loans typically have higher interest rates.
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 its 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.
Paying For Solar Panels In Cash
For homeowners who wish to maximize their savings, paying in cash is the optimal way to go. After all, by buying a residential solar power system outright, youre essentially paying in advance for 25 to 30 years of electricity to use in your home.
This means your home energy rates are locked in for decades, and you dont have to worry about inflation or rising utility costs. The big problem with paying in cash is that the upfront cost of solar power equipment tends to be fairly high.
Even when you take into account incentives like federal tax credits and rebates, youre looking at an investment of at least $10,000 to $15,000. This isnt going to be feasible for every homeowner.
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What Credit Score Is Needed For Solar Panels
This depends on how you want to finance your solar panels. If you want to use a personal loan to pay for them, youll typically need good to excellent credit to qualify a good credit score is usually considered to be 700 or higher.
There are also several lenders that offer personal loans for bad credit. However, keep in mind that these loans will likely come with higher interest rates compared to good credit loans.
Even if you dont need a cosigner, having one could get you a lower interest rate than youd get on your own.
Benefits Of Buying A House With Solar Panels
What are the benefits of buying a house with solar panels?
First, a little background on your options. Many homeowners buy solar panels outright or purchase with the help of a loan. Others choose to lease their systems to save on the cost of installation.
The main difference between these types of solar acquisitions is ownership. When you purchase solar panels, you have full ownership over the system, but when you lease solar panels or sign a power purchase agreement , a third party owns the solar equipment.
It’s important to realize that while solar panels can save you money on energy bills and energy companies often offer homeowners large subsidies, they can still cost a lot to install.
Both options are great choices for someone interested in a solar panel system, so make sure to choose the right option for your own personal situation. For example, you might consider purchasing solar panel equipment if you want to increase the market value of your home or take advantage of the systems financial benefits, rather than only having them for their environmental benefits.
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States That Allow Solar Ppas And Leases In 2021
When you sign a power purchase agreement or lease with a solar installer, the company owns thesystem. This is alsocalled third-party ownership, and itâs a financing model allowed in only about half the statesin the US. This is alistof states that permit this in 2021:
Some states do not allow this because of regulatory obstacles preventing solar companies fromselling electricityintothe grid – the argument is that these companies have a widely distributed set of small solarpower plants and areeffectively acting as utilities. There may also be political opposition from entrenchedinterests who would prefertonot have distributed solar competing with existing power generation.
Loans From Utilities Or Cities
In some states, certain participating utility companies actually offer on-bill financing programs. This means you can repay your solar bill via payments that go right on your regular electric bill. Additionally, some cities and other jurisdictions offer low-interest loans, rebates and other incentives for installing solar systems. To see whats available in your area, view the Database of State Incentives for Renewables & Efficiency.
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Other Ways To Take Advantage Of Getting Solar Power
If youre not in a position to get a solar loan right now but you still want to take advantage of solar power, youre in luck. There are a lot of other options available. One downside, however, is that since you wont own the solar panel directly, you wont be able to claim any tax breaks. But you can still come out ahead financially and ethically.
Avoid Hidden Solar Loan Fees With Our Checklist
The best way to avoid hidden solar loan fees is to carefully review any loan documents to make sure you understand the fees youre paying upfront and any additional costs associated with your loan. You should also feel comfortable asking your potential installer or lender any questions to ensure you understand your fees, interest rate, and the overall cost of your solar loan.
We created a checklist with four questions youll want to ask your lender about your solar loan to make sure you understand what youre paying and any fees:
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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
Alternatives To Solar Loans
If you dont want a separate loan to finance your solar panels, there are several energy-efficient mortgage programs available that allow you to roll in the cost of financing a solar system. The rates are typically lower than other solar loan options, according to the U.S. Department of Energy. Below we highlight several options.
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How To Apply For A Solar Loan
Some solar installers with relationships with financial institutions will help walk their customers through the application process. Commonly, applying for a solar loan requires a credit check and filling out an application. In some cases, the lender offers a simple application process and rapid approval.
However, some secured loans will take longer, especially if an appraisal is needed. Unfortunately, getting an appraisal can increase the loan fees.
Can You Finance A Battery Installation With A Solar Loan
Yes! But this isnt an option with all types of loans, so make sure to confirm with your chosen financier specifically before proceeding just to be safe. Many lending institutions these days allow you to wrap in battery costs in your full loan amount, and some have even built tailored solar-plus-storage or standalone storage loan packages
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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: Its 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 thats 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
- Dont open any new credit cards near or during the process of applying for a solar loan
Educational Employees Credit Union
Educational Employees Credit Union is the best loan option for educational employees in Califonia counties. This credit union will finance all your solar panels, smart products, and energy efficiency equipment.
With Educational Employees Credit Union, you can borrow as little as $100 or as high as $40,000. And the good news is that you do not need to have home equity as collateral for the loan approval.
When buying solar or home energy efficiency equipment, you need to ensure that they meet EECU Energy Efficiency Standards. The credit union covers a variety of products and services. Some of the products covered include swimming pool covers, high-efficiency toilets, deck installation, solar installation, and energy star appliances.
These loans are known for their low-interest rates. And you do not need to pay any application fees, making them quite attractive.
Unfortunately, this solar credit union is also only limited to Califonia residents. It currently serves close to 200,000 people in 10 California counties.
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Other Solar Financing Options
Outside of solar-specific loans, there are other alternative financing options that may move the needle on your solar energy project. From personal loans to energy efficient mortgages, lets explore the variety of financing there is to consider. Its important to note that not every lender offers these products or honors every program available.
Can You Refinance Solar Loans
Yes, you can. To refinance a personal loan that you used to purchase solar panels, youll simply take out a new personal loan to pay off the old one. Depending on your credit, this might get you a lower interest rate, which could save you money on interest and even help you pay off your loan faster.
Or you could opt to extend your repayment term to reduce your monthly payment. Just remember that choosing a longer term means youll pay more in interest over time.
Keep in mind:
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How Much Output Can You Expect From The Existing Solar Array
You might have to do some math to determine how much solar power your roof could produce. Multiply your household’s hourly energy requirement by the peak sunlight hours in that area and divide by panel wattage. This will give you an indication of whether the existing solar array should offer enough “coverage” for what the home will require.
The Residential Energy Consumption Survey, according to the U.S. Energy Information Administration, put together general figures of average energy consumption and number of panels recommended per month based on home size.
Can You Get A Solar Loan With A Poor Credit Score
In case you dont have a good credit score, you should consider delaying your solar panel installation for a couple of months. Then, use the time to increase your credit score.
Some things you can do to improve your score include checking your credit report for errors, paying off high-interest debt , and building a positive payment history by paying your bills on time.
Nevertheless, if you have a bad credit score but wish to install solar panels right away, you should start looking into personal loans for bad credit. This will reduce your chances of getting rejected for a loan because of your credit score.
Make sure you can comfortably make the monthly payment on the loan you pick otherwise, you will decrease your credit score even further.
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Learn Solar Loan Requirements And Terminology
The goal of solar systems is to save you money on your utility bills. However, there are some unique qualifying requirements and features youll need to understand when reviewing any solar loan offer:
- . The minimum for a solar loan is typically 680, which is higher than the minimum 620 score required to be preapproved for most traditional mortgage loans. That could spell trouble if you try to sell your home to low-credit-score buyers before your solar loan is paid off.
- Down payment. Solar loans are usually available with $0 to $3,000 down payment options. Borrowers making a higher down payment will typically have a lower monthly payment and shorter term.
- Escalation clause. Although more common with solar leases and PPA contracts, this clause allows lenders to increase your payment due to inflation and projected increases in electricity rates.
- Contract terms. Also called a duration or payback period, this is how long your payments are required typically five to 20 years.
- Ownership transfer requirements. If you sell your home before your solar loan is paid off, make sure you understand the requirements for the new buyer to get approved to take over your loan.
Determining Your Solar Loan Fees
Any loan documentation you get from your installer or lender should clearly lay out your interest rate and any fees. The best thing you can do is to ask questions if youre unclear. Just as your installer helps explain the solar panel equipment, your lender can explain any details on solar panel financing and what options are available to you. After all, solar is an investment and its important that you know the details on your new investment.
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Purchasing A Solar System With Cash
The cash purchase option will save you the most in the long run, as youll avoid costly interest or escalator fees. However, this option will have a rather large cash outlay and therefore presents you with an opportunity cost. If you dont have this amount in a savings account, many homeowners choose to do a HELOC and fund the project this way.
If you are choosing to finance through a cash purchase, your installer will set up progress payments, or benchmarks during the project when predetermined amounts are due to the installer. This varies wildly from installer to installer, with some of the larger companies requiring most of the system paid for before construction even begins!
At Solar.com, there are 4 progress payments for a cash purchase:
Solar Ownership Directly Increases Your Home’s Value
Based on the U.S. Department of Energys Lawrence Berkeley Labs, home-buyers will pay an extra $4/Watt to install solar panels. The value of your home depends on the panels that will give you free electricity for many years. You can still sell your house even though youre in the process of paying off the loan. You can transfer the loan to the tenant, or repay the remainder of the loan with the sale.
The Solar Investment Tax Credit is available to you
You must meet the following requirements in order to be eligible for tax credit
- You can buy your system with a loan or cash
- You can pay income taxes equal to or greater than 30 percent of the cost of the system.
Its that easy! This is a step by step guide to help you apply for the Federal Solar Investment Tax Credit. The tax credit amounts to 30% of the total price of your solar system. The credit total is taken from your personal income tax at the time your system starts production. What happens if you have less income tax than the tax credit? The Solar Investment Tax Credit will rollover to the next year if necessary, up to 5 years maximum.
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