Solar loans can make residential solar installation more financially accessible, especially in unpredictable economic times. Owning your system outright will reap you the greatest return on investment, but if the up-front cash outlay is burdensome, loans help provide affordable solar options.
Why use a solar loan instead of leasing your solar array?
Solar loans allow you complete ownership of your solar installation. When you own your solar panels, you receive the federal and state solar tax incentives, as well as the full value of your solar electric system's energy production. Not only that, but you keep dollars in the local economy here in Massachusetts.
Leasing your roof, however, prevents you from reaping these financial benefits. In addition, you won't have control over the solar design aesthetic on your roof.
Another drawback to leasing solar panels? When it's time to sell your home, you will either have to buy out the solar lease, or the person purchasing your home will have to assume it. This can scare off buyers, or even end up costing you more than if you hadn’t gone solar in the first place. Conversely, if you own your solar panels, your home is likely to sell faster and command a higher price.
Finally, the monthly payments for a solar loan are likely to be lower than the monthly payments for a solar lease of the same term.
Beware of high fees and interest rates
We recently heard about a homeowner (not one of our customers) who ended up in a solar loan contract that effectively doubled the cost of his system! The reason? A 6% interest rate and high origination fee.
When our clients are pursuing solar loans, we provide them with support to prevent situations like that. We want to make sure you find the solution that works best for you.
Comparison shopping is a good idea before selecting a solar loan. According to Consumer Reports, banks and credit unions may offer better rates than solar-specific loan providers.
Solar loan options
Solar loans may be secured or unsecured.
Secured solar loans require you to provide some sort of collateral, typically your house. Secured loans are less risky for the lender, so they generally have lower credit score requirements and lower interest rates. In most cases, the interest you pay on a secured loan is tax-deductible. However, you will need a good debt-to-income ratio as well as sufficient home equity in order to qualify for a secured loan. Because of this qualification process, secured loans can take some time to finalize.
With an unsecured loan, your house doesn’t act as collateral and the interest isn’t tax-deductible. However, these loans pose an increased risk for lenders, so they typically command higher interest rates. One benefit of an unsecured loan is that you can often be approved within minutes.
Because secured loans have lower interest rates, they offer a better long-term value for homeowners. That said, an unsecured loan might work for someone who doesn't have enough equity, isn't worried about the interest tax deduction, and/or wants their loan in a hurry.
Aside from dedicated solar loans, you might also consider a home equity loan or a home equity line of credit to finance your solar installation. And if you're refinancing your home, ask your home insurer whether they offer solar financing through their mortgage program - some do.