How to Finance Solar Panels (Part 1)

Can you finance solar panels?

We all know that a solar power system is not cheap to purchase and install.  Even though tax credits and incentives are generous, you may still be wondering whether you can finance solar panels.  Would that even be a wise decision?

Under certain circumstances, you may be able to get a loan for solar panels.  There are benefits and drawbacks to consider before you make such a decision.  And, even if you decide to finance solar panels, you should consider the type of loan you’ll want to seek.

Due to the large number of solar panel payment options, we’ll break this into two posts.  Part 2 will be published tomorrow!

When You Should Consider Financing:

• Monthly payments would be approximately what you would otherwise pay in electricity bills and/or you can comfortably stick to the loan schedule
• You have ample equity in your home and do not plan to sell for the next 12-24 months (or more).
• Financing programs may include maintenance or repair of the solar panels, saving you hassle and expense
• If your liquidity is low, but credit rating is at least 640

You can get loans for solar panels

When You May Wish to Reconsider Financing:

• Credit check and approval process may delay your purchase
• You could end up paying more for the solar panels due to interest charges over the life of the loan
• If there are loan restrictions on selling your house
• The fine print in a solar panel lease or power purchase agreement (PPA) includes onerous requirements or restrictions
• If your credit score is below 640

O.K., so if you’ve decided that financing solar panels is a sound decision for you.  The following options are available; you may wish to consult with a financial advisor before signing up, however!

1.  Credit Card.  Yep, you can charge them.  Before you slap down your plastic, however, make sure your credit limit is high enough and interest rate low.  Unlike home equity loans, the interest will not be tax-deductible.  Also, make sure that your bank is not adjusting interest rates upwards as some are currently doing.

2.  HELOC (Home Equity Line of Credit) or Home Equity Loan.  I’ll be honest.  These were a lot easier to obtain several years ago than now.  Still, for people that retain ample equity in their homes, this option is generally the favorite for financing solar panels.  Often times, the interest on the loan is tax-deductible, but always check with a professional beforehand.  Interest rates can vary widely between HELOCs and home equity loans, from 4.5-8%

3.  Refinancing a First Mortgage.  Similar drawbacks and cautions to the notes above, except that you can be certain that interest payments will be tax deductible.  The question is, can or should you refinance your mortgage in today’s market?  This won’t be an option for you if you owe more than your home is worth.

4.  Lease Solar Panels.  As shown in the video above, you could consider an operating lease as a way to finance solar panels.  Expect a lease term of 7-20 years, and payments that will be at or below expected utility costs.  Similar to a car lease, you can purchase the panels at the end of the term, or simply renew the agreement.  Check the terms of the lease for any restrictive requirements before signing!

5.  Direct Vendor Financing.  Reputable companies like Sharp Solar and BP Solar offer financing to qualified customers that wish to purchase their panels.  The upside is that the payments are usually low and spread out over a long period of time (15-30 years), and incentives such as no payments for one year may be enticing enough to lure you in.  Not surprisingly, you’ll get a better interest rate depending on your credit score.  If you are working directly with a solar panel dealer, be sure to ask if they offer financing and get a clear picture on the terms of the loan.

Haven’t seen a good answer to the question of how to pay for solar panels yet?   Check back tomorrow when we publish 5 additional options to finance solar panels.

Would you get a loan for solar panels?  If so, what type of vehicle would you use?

Tags: finance solar panels, how to pay for solar panels, loans for solar panels