Considering Solar Loans? Here’s What To Know
June 14, 2023
Going solar is one of the wisest steps you can take to lower your utility costs and better the planet. That said, acquiring a reliable, high-quality solar installation isn’t free (as nice as that would be). However, solar installation costs continue to decline.
Although the exact cost varies by state, the average price of a home solar installation is $20,000. Still, you can affordably finance your own home solar installation. You have multiple options, and one of your wisest is pursuing solar loans.
Unfortunately, paying cash in full is simply not a viable route for many people who want to enjoy alternative energy. Fortunately, solar loans can help you get there — it’s only one reason they’re a smart choice.
Let’s examine what solar loans are, what to consider when surveying them and other loan options.
Note. Solar panel leasing is sometimes confused with solar loans. At Freedom Solar, we don’t offer leases for solar panels. We do offer something far better — the ability to own! With our budget-friendly financing options, we make it easy for you to go solar when the timing’s right.
[Related: 51 Uses of Solar Energy]
What Are Solar Loans?
In short, solar loans are loans specifically for solar panel systems and installations. They work in much the same way as home renovation loans.
You borrow money from a lender (sometimes a solar installation company) and repay it monthly, plus interest. That money goes toward a solar panel installation, which starts saving you money as soon as it’s operational. Depending on your circumstances and financial situation, you may opt for a secured or unsecured loan:
- Secured loan. The lender claims an asset as collateral in case you default on your loan payments. Lenders generally approve secured loans if you have a valuable asset (like your home). Most secured solar loans are amortized, and your repayment term is usually 10 to 30 years.
- Unsecured loan. The lender does not claim collateral, but it weighs your income, credit rating and more. Getting unsecured loans is more difficult than getting secured loans. Most unsecured solar loans are unamortized, and the repayment term is generally one to seven years.
Regardless of the loan type you pursue, solar loans come with major benefits:
- You don’t pay for a solar panel installation up front, and a solar installer can start setting up your system.
- Solar loans give you legal ownership of the installation (as opposed to leases, for example).
- Ownership means you can take advantage of federal rebates and incentives, which offset your total costs.
- Monthly loan payments often equal or are less than what you’d pay for monthly electric bills, so you may very well break even or save money.
When you want to go solar but don’t have a brimming bank account, loans for solar installations make it affordable within your current monthly budget.
Tip: The Freedom Solar Project Planner helps kick-start and organize your solar journey.
[Related: Saving With Solar]
What To Consider When Comparing Solar Loans
Now that you know the basics, thoroughly consider three main factors before locking into a loan for solar:
- Loan terms. This is how long it’ll take you to pay off the loan in full. Longer-term loans tend to have higher interest rates, while the opposite is true for shorter-term loans.
- Solar loan interest rates or annual percentage rates (APRs). Solar loan interest rates indicate the percentage you pay the lender as a trade-off for the money they loan you. APRs differ slightly — they’re the full yearly cost of borrowing, plus fees. APRs are usually higher than interest rates.
- Fees. These include any additional costs the lender includes in the loan. Original fees, dealer fees and closing costs often accompany a loan for solar.
Here’s a word of advice before finalizing solar loans: Explore your options.
You’ll find dozens of lenders and lending options, from banks to specialty solar installers. The three factors above may vary widely among them, and you know which options best fit your situation. Plus, you want to find the longest-lasting panels and equipment for a thoroughly sound investment.
Solar Loan Interest Rates and Fees
Let’s pause for a moment and focus on trying to find the best solar loan rates.
As consumers, we’re apt to lean toward the lowest rates when shopping around. However, the lowest solar loan rates may not be the best solar loan rates for you. The devil is in the details.
Always read the fine print and ask plenty of questions. What apparently may be super-low solar loan rates could include tacked-on fees (up to 30%) and high hidden charges.
Before you sign that loan for solar, consider the cost to install solar panels. It gives you a much better overview than solar loan interest rates alone.
For example, solar loan interest rates are 4% to 7% but can reach 36% on average. Meanwhile, origination fees can be 1% to 5% of the total loan but may hit 30%. It’s yet another smart reason to look at multiple lenders, delve into the details and ask questions.
We can’t stress enough how important it is to weigh the loan term and fees alongside the interest rate. The latter’s not the sole measure of your ideal loan. After all, you’re aiming for an investment that lasts decades and increases your property’s price.
[Related: Guide to Federal Solar Panel Incentives]
Further Options for Solar Loans and Lenders
Because solar installation companies are industry specialists, they’re often your best financing option. However, other entities may offer solar loans:
- Solar lenders. Specialty companies work with financial institutions and social installation companies to offer solar loans.
- Utility companies. Strangely enough, your utility company may help you foot the solar installation bill by financing and repaying monthly.
- Municipalities. In some states, you can find Property Assessed Clean Energy (PACE) financing and pay per your property tax charges.
- Credit unions. One of your local credit unions may offer decent loans for solar.
- Big banks and lending institutions. Financial entities may provide residential-specific solar loans.
- Private-public partnerships. Private lenders sometimes team up with local government agencies to create competitive solar loans.
You have an array of lenders to explore, so remember those three key factors while looking around! A trusted solar installation company can offer further advice.
Note: Beyond solar loans, financing options include payment purchase agreements (PPAs), solar panel leasing and government programs. Leases and PPAs give you quick access to solar, but you can’t take advantage of federal solar incentives.
Contact Freedom Solar for Excellent Financing and Expert Installation
At solar panel company Freedom Solar, we like to help you navigate the maze and make going solar simple. With our flexible pricing, most customers finance their installation with no money down,low interest, and payment plans that help fit solar into your current household monthly budget.
Plus, you don’t have to worry about all the hassles that leases can create. Our competitive financing options ensure you enjoy all the benefits of owning your solar installation!
Featured image via Pexels