The Ins and Outs of Solar Loans and Sales

Solar energy has seen massive growth in recent years as homeowners look for ways to save money on electricity costs and help the environment With installation prices dropping, solar loans have become an attractive financing option for many homeowners In this article, we’ll explore everything you need to know about solar loans and sales.

What is a Solar Loan?

A solar loan allows you to finance the purchase and installation of a solar panel system for your home. Rather than paying the full cost upfront, you can spread payments out over time. This makes solar energy affordable and accessible to more homeowners.

Solar loans typically have repayment terms of 10-20 years. You immediately start saving money on your electricity bill once the panels are operational, while making monthly loan payments that are usually less than your energy savings. At the end of the loan term, you own the solar system outright.

There are two main types of solar loans

• Secured solar loans – These require an asset like your home as collateral. They typically have lower interest rates since the lender’s risk is lower.

• Unsecured solar loans – No collateral is required, but interest rates are generally higher. These loans are easier to qualify for if you have good credit.

Solar Loan Interest Rates

Interest rates on solar loans can vary quite a bit, but typically fall in the 3-8% range for borrowers with good credit scores. Here are some factors that influence the rate you’ll be offered:

• Credit score – The higher your credit score, the lower the rate since you’re seen as a lower risk. Scores below 650 may disqualify you entirely.

• Loan term – Shorter terms usually have lower rates. A 5-year loan will have a lower rate than a 20-year loan.

• Secured vs. unsecured – Secured loans almost always have better rates.

• Loan amount – Borrowing more increases rates.

• Lender – Each lender has their own methodology. Shop around for the best rate.

• Special programs – Some utilities and state/local governments offer low rate solar loans.

Comparing Solar Loans and Leases

Along with loans, solar leases have been a popular way to go solar with little or no upfront cost. But leases are falling out of favor as loan options expand. Here’s how the two stack up:

• Ownership – With a loan, you own the system. With a lease, the installer owns it.

• Electricity savings – You benefit from all the savings with a loan. Savings are split with the installer under a lease.

• Customization – Loans allow system customization. Leases come as preset packages.

• Home value – Solar owned systems boost value more than leased systems.

• Financial return – Loans provide greater lifetime savings and ROI.

• Responsibility – With a loan, you’re responsible for system upkeep and repair. These costs fall to the installer with a lease.

For most homeowners today, a solar loan is the better financial decision over a lease.

Where to Get a Solar Loan

You have several options when it comes to lenders for solar loans:

• Banks – Large national banks, community banks, and credit unions often offer solar loan products.

• Credit Unions – Great source for secured loans and member-friendly rates.

• Specialty lenders – Companies like Mosaic and Dividend Finance focus specifically on solar loans.

• Installers – Some solar companies provide financing themselves or partner with lenders.

• PACE programs – These property-assessed clean energy programs allow you to repay through property taxes.

• Government agencies – State/local green banks and utilities provide low-cost financing options in many areas.

It’s wise to check rates from multiple lenders to find the best deal. Be sure to compare the total costs over the life of the loan, not just the interest rate. Online solar marketplaces like EnergySage let you easily shop and compare solar loan options.

Solar Loan Qualification and Credit Requirements

Qualifying for a solar loan works much like qualifying for any other home loan product like a mortgage or HELOC. Key criteria lenders evaluate include:

• Credit score – A score of 680 or higher is ideal. Under 600 and approval will be very difficult.

• Debt-to-income ratio – Lenders look for a DTI under 50% in most cases. Lower is better.

• Home equity – For secured loans, you’ll need sufficient equity in your home.

• Employment – Steady income is required to demonstrate ability to repay.

• Defaults or bankruptcies – Major negatives like these require sufficient time to elapse.

While top tier credit generally secures the best rates, those will less-than-perfect credit still have options. Programs like FHA PowerSaver provide solar loans to borrowers who may not otherwise qualify.

Applying for a Solar Loan

The solar loan application process is very similar to applying for a home mortgage or HELOC:

• Preapproval – Many lenders allow you to check rates and prequalify online in minutes before formally applying. This lets you estimate costs/terms and shop lenders.

• Formal application – You’ll provide basic personal and financial information like with any loan application. Approval may take a few days.

• Solar proposal – Get quotes from installers or use a marketplace to instantly view pricing.

• Lender approval – They will approve your system specs and projected production.

• Installation – Schedule your solar panel installation after the loan closes.

• Loan funding – The lender provides funding directly to your installer.

• Loan repayment – You repay the loan over time while enjoying electricity savings.

It’s wise to get preapproved before shopping for solar so you know what loan terms/costs to expect.

Tips for Getting the Best Solar Loan Rate

Follow these tips when shopping for solar loans to ensure you get the lowest rate and costs:

• Maintain a credit score over 700 if possible
• Compare rates from at least 3 lenders
• Consider credit unions for the most competitive rates
• Explore secured loan options in addition to unsecured
• Check for state/local low rate solar loan programs
• Choose shorter loan terms (under 15 years)
• Make a sizable down payment if possible
• Get quotes from multiple installers to minimize system cost
• Use an online solar marketplace to easily find deals

With some shopping around, you can likely save 0.5-1.5% or more compared to just going with the first lender you see. Those savings really add up over a 15 year solar loan.

Should You Buy or Lease Your Solar System?

For most homeowners today, buying your solar system outright or with a solar loan is the best financial option versus leasing. When you own your system, you keep all of the associated electricity savings, tax incentives, and rebates while boosting your home’s value. The solar lease market has declined considerably as loans have become widespread and affordable.

That said, a lease requires no upfront investment and locks in electricity savings from day one. This can be attractive for some homeowners who want to avoid any system maintenance and who may move before the lease period ends. But for long term owners, buying/financing ends up being the smarter play in nearly all cases.

Is Solar Worth the Investment?

Absolutely – with electricity costs rising across the U.S. and solar panel prices dropping over the past decade, solar energy is one of the best home improvements you can make both financially and environmentally.

The average home solar system cuts electricity bills by 50-90% from day one while appraising home values by about $15,000 on average. This value only increases over time as electricity rates inevitably rise. Factor in income tax credits, accelerated depreciation, solar renewable energy credits, and net metering payments in many states and solar delivers an incredible long term ROI.

While solar does involve a significant upfront investment, that is where financing like solar loans makes the technology truly affordable and accessible. With loan payment often 20-40% lower than your immediate utility savings, you start seeing positive cashflow from your solar investment on day one.

Solar loans allow homeowners to finance solar panel systems with little or no money down while unlocking immediate electricity savings. With loan terms up to 20 years and interest rates as low as 3-4% for qualified buyers, solar works within most home budgets.

Purchasing and financing a solar system is preferable to leasing for most homeowners. Be sure to shop around for the best loan rates and use online tools to easily compare products and costs. For both your wallet and the planet, solar power paired with an affordable loan is a winning combination.