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Installing a home solar system is a smart long-term investment, and it’s usually best to purchase your solar panel system rather than lease it. There are very few situations in which it will make more financial sense to lease solar panels than buy them outright or take out a solar loan.
Whether you take out a loan or sign a lease, going solar is a smart move because it saves you tens of thousands of dollars on your electric bill no matter how you choose to pay for your system. If you take out a solar loan there are more benefits than a lease because you own the system. Owning the system can increase the value of your home, attract more buyers, and help you sell your home at a higher price point.
Purchasing a new solar system outright with cash is by far the best way to reap the most financial rewards from your investment. However, the average homeowner may pause at the upfront cost – which is typically as much as $20,000 or $30,000 before tax incentives and rebates. If you have to decide whether to lease your system or purchase it with a solar loan, the majority of the time it makes the most sense to pay off your system with a solar loan because you own it outright at the end of your loan term. That’s not the case with a lease.
Going solar is one of the biggest investments you can make for your home. With the average cost of a solar panel system running anywhere from $15000 to $25,000, most homeowners need financing. The two most popular options are solar leases and solar loans. But which one makes the most financial sense for your situation?
I’ve gone solar twice – first with a lease and then a few years later when the lease ended, I took out a loan to buy my system After experiencing both, I can say with certainty that solar loans are better than leases in many ways.
In this article, I’ll compare solar leases vs loans so you can weigh the pros and cons of each when deciding how to finance your solar panels. I’ll also share tips on selling a solar home and transferring agreements to a new owner if you end up moving.
Overview of Solar Leases and Loans
First, let’s quickly define what solar leases and loans are:
Solar Lease: A solar lease lets you rent or lease a solar system owned by a solar company. You pay a fixed monthly fee and the solar company handles maintenance and repairs. You don’t own the system.
Solar Loan: A solar loan lets you borrow money to purchase and own a solar system for your home. You make monthly loan payments for a term of 5 to 20 years.
With both options, you’ll save on electricity without paying full price upfront. But the similarities end there. Below I’ll compare the two financing options in detail.
Solar Leases vs Loans: Key Differences
System Ownership
The biggest difference between solar leases vs loans comes down to system ownership.
With a solar loan, you own the entire solar system. This means you can:
- Choose your equipment and customize your system
- Take advantage of tax credits and incentives
- Increase your home’s value since you own the asset
With a solar lease, the solar company owns the system. You have little control or ownership.
Costs & Savings
When calculating solar leases vs loans, you need to look at both monthly costs and long-term savings.
Solar Leases
- $0 down payment
- Fixed monthly fee of $30 to $200
- Rate escalator causes fees to increase 2-3% yearly
- No ownership – system removed after lease term
Solar Loans
- Usually $0 down payment
- Fixed monthly loan payment
- Owns system after loan term
While a solar lease seems cheaper at first, the rate escalator results in higher long-term costs. With a loan, you gain ownership and the monthly payments don’t increase.
To accurately compare costs, calculate the following:
- Loan interest rate
- Lease rate per kWh
- System production and energy bill savings
- Total 20-30 year costs
Run the numbers for your situation to see which nets more savings over the system lifetime.
Incentives & Tax Credits
One of the biggest financial downsides of leases is missing out on incentives and tax credits.
With a solar lease, the solar company owns the system so they receive any financial incentives, not you. This includes:
- Federal Solar Tax Credit – 26% of system cost
- Local rebates – $500 to $1000
- Solar Renewable Energy Credits
If you take out a solar loan, you directly benefit from incentives and credits since you own the system. This further reduces your overall costs.
Maintenance and Warranties
Since solar systems require little maintenance, who handles repairs isn’t a major factor. But here’s what to expect:
-
Solar leases – The solar company handles any maintenance issues. But customers report problems getting issues resolved since companies lack incentive to prioritize requests.
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Solar loans – You’re responsible for maintenance as the system owner. However, warranties from the installer and manufacturer (usually 10-25 years) cover repairs.
Availability
While solar loans are available nationwide, some states prohibit or restrict solar leasing programs. So your options may be limited based on where you live.
Be sure to research what’s allowed in your state before pursuing either financing method.
Selling a Home with Solar: Lease vs Loan
Selling a solar home is easier if you own the system. Here’s how leases and loans work when moving:
Selling with a Solar Loan
If you have an outstanding solar loan balance, there are two options:
-
Pay off the loan when you sell – Use proceeds from the home sale to cover the remaining loan payments. This ensures you don’t pay for a system on a house you no longer own.
-
Transfer loan to buyer – The new homeowner takes over your loan. Make sure your loan doesn’t have a prepayment penalty to allow this.
Having a loan makes selling simpler since you have ownership.
Selling with a Solar Lease
With a solar lease, you must either:
-
Buy out the lease – Pay the leasing company remaining payments to end the agreement early. But read your contract! Many have early termination fees.
-
Transfer lease to buyer – If new owner qualifies and agrees to transfer, they take over payments. Most buyers don’t want to assume an existing lease.
No matter what, leases almost always complicate home sales. Buyers don’t want to take over payments for a system they don’t own and didn’t choose.
While possible to sell, leases turn away some buyers and give you less control.
Should I Go Solar if I Might Move Soon?
Even if you end up moving in 5 or 10 years, going solar now makes financial sense. Here’s why:
- You’ll save money on electricity immediately with zero upfront costs
- Paying off a loan or buying out a lease when selling your home lets you maximize ROI
- Home buyers are willing to pay more for solar homes – you recoup costs
- Lock in energy savings for years while electricity rates continue rising
As long as your timeline for moving isn’t less than 5 years, the electricity savings outweigh any lease termination fees or loan payoff costs.
Run the numbers to see how soon you’d break even on your solar investment. Even if you move earlier, any penalties or fees likely equal less than you’ll save.
Key Takeaways: Solar Loans vs Leases
After comparing solar loans and leases in-depth, here are the key points to remember:
- Solar loans provide full ownership, control, tax benefits, and higher home value
- Lease rate escalators mean you lose out on fixed electricity rates
- You can’t benefit from tax credits & incentives with a lease
- Loans give you an asset while leases take away ownership
- Reselling a home is far simpler with a loan rather than lease
While leases seem enticing with $0 down and “free solar”, they end up costing you more in the long run. Loans are better financing options for most homeowners.
Before committing to any solar agreement, have a reputable solar installer run the numbers for your situation. Make sure you clearly understand all contract terms and can explain them to others.
And don’t let worries about moving soon deter you from going solar. You’ll recoup your investment through electricity savings quickly, and any costs associated with early termination or loan payoff will likely be minimal compared to what you’ll save over 5-10 years.
System operations and maintenance
Solar energy systems generally requirelittle maintenance over their lifetimes. However, in the rare cases that they do, the responsibility typically falls on the system owner if your solar panels need care.
Solar lease: If you choose a solar lease or PPA, the leasing company that owns the solar system typically will offer a service program to cover any maintenance issues that arise during the lease term. Although this sounds good on paper, some customers report difficulties trying to get their leasing companies to come check on their systems. Unfortunately, since you’re on the hook for your monthly payments no matter what, they have little incentive to prioritize customer maintenance requests. This isn’t necessarily a huge benefit either, since solar panels come with warranties that cover equipment malfunctions anyway.
Solar loan: If you take out a solar loan to purchase your system, you’re responsible for its maintenance, but you should be covered by your equipment manufacturer’s warranty, which typically lasts anywhere from 10-30 years. Plus, your solar installers should also provide a workmanship warranty.
Solar lease: Solar lease and PPA applications can often be approved and signed in a single meeting, but as with any major financial commitment, it’s wise to do additional research and think through the decision before committing on the same day.
Solar loan: In comparison, solar loans can take longer to approve because they require additional administrative steps like home appraisals that may take a few weeks.
No down payments or upfront cash required
Down payments usually aren’t required for either solar loans or solar leases, so you’ll see immediate savings from both without having to make a significant cash expenditure.
Solar lease: After the first year of a solar lease, you’ll experience annual rate increases known as an escalator, which means that each year your monthly payments will be higher. That’s because your leasing company will typically raise your per kWh cost around 2-3% each year, which means you lose out on stable electricity costs, one of the benefits that makes solar panels so financially appealing.
Solar loan: Annual rate increases aren’t written into solar loans. If you take out a solar loan, your monthly payments are fixed for the entirety of your loan term and remain consistent. There are two types of solar loans – secured and unsecured – which we’ll explain in more detail below.
Another less common option is aprepaid or custom down payment lease or PPA – but it requires spending money out-of-pocket. We don’t generally recommend this option, even though it can result in lower monthly costs.
Buying vs Leasing Solar – What Sunrun, Vivint, and Sunnova don’t want you to know!
FAQ
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