Solar panels can significantly reduce your electricity bills while adding value to your home, but the initial cost of installation can be steep. If you’re considering going solar but don’t have the upfront cash, financing options are available to help you make the switch without delay. Let’s break down everything you need to know about financing solar panels, so you can make an informed choice and start saving.
How much do solar panels cost?
The cost of installing solar panels varies based on location, system size, and panel type. In 2024, the average cost of an 11kW residential solar panel system is about $22,022 after applying federal tax credits. Smaller systems, such as 6kW setups, can range between $14,100 and $21,240 before incentives.
While the price might seem high, solar panels can pay for themselves in energy savings within 5 to 10 years. Plus, they last over 25 years, delivering long-term benefits. Financing can bridge the gap between upfront costs and future savings, allowing you to start saving on your energy bills sooner.
Solar Panel Financing options
1. Personal loans
A personal loan allows you to borrow from a bank, credit union, or online lender without using your home or solar panels as collateral. Loan amounts range from $1,000 to $100,000, with repayment terms typically between two to seven years.
- Advantages:
- Quick approval and funding (often within a week).
- Short repayment terms, meaning you’ll see net savings from your solar system sooner.
- No collateral required, so your home isn’t at risk.
- Disadvantages:
- Higher interest rates compared to home equity financing.
- No tax benefits tied to the loan itself.
- Potential origination fees that reduce the amount you receive upfront.
- Best For:
Homeowners who prefer not to use their property as collateral and want a short-term financing option.
2. Home equity loans or lines of credit (HELOCs)
Home equity loans and HELOCs allow you to borrow against the equity in your home, using it as collateral. These options typically offer lower interest rates and longer repayment terms (up to 20 years).
- Advantages:
- Offers more competitive interest rates compared to personal loans.
- Tax-deductible interest if used for home improvements, including solar panels.
- Disadvantages:
- Long repayment terms, meaning it could take decades to pay off your solar panels.
- Your home is at risk if you fail to make payments.
- Best For:
Homeowners with significant equity who want low-interest, long-term financing with tax benefits.
3. FHA 203(k) loans
FHA 203(k) loans are government-backed loans that bundle home improvement costs, like solar panels, into a new or refinanced mortgage. They have softer borrowing requirements, such as lower credit score thresholds, but you’ll need to adhere to specific project timelines.
- Advantages:
- Lower credit score requirements than traditional loans.
- Lower interest rates than personal loans.
- Disadvantages:
- Mandatory FHA mortgage insurance, adding to overall costs.
- Strict project timelines for contractors to follow.
- Best For:
Homeowners who are refinancing or don’t qualify for other low-interest financing options.
4. Contractor financing
Many solar installation companies partner with third-party lenders to offer financing directly to their customers.
- Advantages:
- Streamlined process—financing and installation are handled by the same company.
- Competitive interest rates, often in the single digits.
- Disadvantages:
- Long repayment terms can offset savings on your energy bills.
- Potential origination or dealer fees.
- Best For:
Homeowners who value convenience and are offered competitive rates by their contractor.
Factors to consider when financing solar panels
- Utility bill savings: Check your current electricity bills to estimate potential savings. Many online tools, like Google’s Project Sunroof, can help calculate savings based on your location and roof characteristics.
- Repayment timeline: Financing options with shorter repayment terms may lead to quicker savings, but they might come with higher monthly payments.
- Tax incentives: Federal and state tax credits can reduce your system’s overall cost. For example, the federal government offers a 30% tax credit for systems installed between 2022 and 2032.
- Maintenance costs: Solar panels require regular cleaning and occasional inspections. Annual maintenance costs typically range between $15 and $30 per panel, with inspections starting at around $150.
Alternatives to buying: Solar land PPAs
If purchasing solar panels isn’t feasible, you can opt for a solar lease or power purchase agreement (PPA).
- Solar lease: Rent solar panels for a fixed monthly rate, typically over 20-25 years. While leases can lower your energy bills, they don’t offer tax benefits or ownership.
- PPA: Pay for the electricity generated by the panels, often at a rate lower than your utility. However, PPA rates may increase by 2-5% annually, reducing long-term savings.
Both options allow you to enjoy lower energy costs without the upfront investment but offer fewer financial benefits compared to ownership.
Do solar panels increase your home’s value?
Yes! Studies show solar panels can increase a home’s resale value by up to 6.8%, depending on the location, system size, and energy costs. However, in some markets, potential buyers may be hesitant about taking on leased systems or financing agreements.
Conclusion
Financing solar panels is a smart way to take advantage of clean energy without breaking the bank. By understanding the pros and cons of each option—whether it’s a personal loan, home equity financing, or contractor-provided loans—you can choose the right path to sustainable savings.
If you have any questions about solar financing, Sunhub is here to help. Contact us for expert guidance tailored to your needs!