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What Homeowners Need to Know About Solar Panel Loans


May 23, 2020 by Aly J. Yale

Solar panels can be a wise investment, saving you serious money and increasing your property value in the process.

But they don’t come cheap. In fact, according to solar marketplace Energy Sage, the typical solar panel system runs just over $13,000. That’s factoring in tax credits, too.

Though some people might have this kind of cash on hand (or in savings), the bulk of homeowners do not. That’s where solar panel loans can come in.

What are solar panel loans?

These are loans designed specifically for financing the purchase of solar panels and solar panel installation. They’re often offered in-house by companies that sell solar panels or install systems, but they may also come from a third-party financing firm. Sometimes, you may be able to get a solar loan from your state, city, or local utility company.

Solar panel loans work like any type of loan product. You purchase your solar panel system, apply for the loan, and then pay off your balance in monthly installments until you own the system in full.

The only exception here is the R-PACE loan. These loans are offered through the government’s Residential Property Assessed Clean Energy program, and they allow you to pay off your solar panel purchase as part of your annual property tax bill. These are only available in California, Florida, and Missouri.

Alternative options to solar panel loans

Aside from solar-specific loans, you can also look to other financing products like home equity loans, home equity lines of credit, home improvement loans, or personal loans. You could also refinance your property using a Fannie Mae HomeStyle Energy mortgage or Freddie Mac GreenChoice mortgage. These allow you to roll the costs of energy-efficient upgrades into your larger loan balance.

Keep in mind that any type of loan you take out will come with interest, so the longer your loan term, the more you’ll pay over time. If you do opt for a solar loan or other type of financing, keep your loan term as short as possible to reduce your overall costs.

Solar leases and PPAs

In addition to loans, there are also Power Purchase Agreements and solar leases. With PPAs, the solar company actually installs and owns your system, and you pay a certain fee per each kilowatt-hour the panels generate. Solar leasing offers a similar approach, although you pay monthly fees for the equipment -- not for the power it produces.

Don’t forget about rebates

Many municipalities and utility providers offer rebates for homeowners who have solar panels installed. Make sure you take advantage of any that are available in your area (check this database), as it could help offset the cost of your install.

Finally, before you install solar panels, make sure you have a good handle on your long-term plans. Solar panel systems can save you lots of money -- but it will take several years for you to break even on their cost. If you only plan to be in the home a short while, it may not be worth the time or investment.

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