How Does Solar Financing Work?

Solar financing is all about financing options accessible to individuals and businesses who want to purchase solar energy installations. You are considering upgrading to solar power for your home, and you are excited because you are going to cut down your electricity expenses.

However, the price tag could be more exciting; a rooftop solar panel system for a residential home costs around $16,000 up to $35,000. Opting for solar energy is a considerable investment, but it pays off by decreasing utility expenses. Suppose you’re considering switching to alternative energy to power your home, then this article on solar financing will guide you on everything you need to know.

Your home solar panel system can be funded in three different ways;

● Cash purchase

● Solar loan

● Lease or power purchase agreement (PPA).

You may start saving money on your energy costs immediately by paying for your solar panels with cash directly, which will optimize your savings.

With a solar loan, instead of buying your panels outright, you only have full ownership once you repay your loan. These two alternatives are the best ways to get a solar panel system because you will own it immediately or after your loan is paid off.

The third method of financing a new solar panel system is through a lease or power purchase agreement (PPA). If you are getting your Family First Solar, you might wonder which option to use. You are about to find out as we will discuss all three options extensively, including their benefits and drawbacks.

Cash Purchase

This is the best option for people who can afford to buy the solar panel system in one payment. If you have the required cash on hand, you can decide to pay for the installation of solar panels in full. This will save you from dealing with the long process of loan applications and payment of high interest rates.

Even though this can be a large amount of money for most people, it’s still a wise choice if you intend to stay in your present house for many years to come— as every month you save the money you would have been spending on energy(electricity). You will also benefit immediately from the tax incentive and the rebate for energy savings.

Benefits

● The moment you pay for your solar panel system, everything is finalized without any additional payment, like interest.

● After payment, you become the owner immediately.

● You will get a quick return on your investment due to energy savings.

● If you decide to sell your home with the solar panel system on it, it increases the value.

● You get cash payments through tax incentives.

Drawbacks

● It’s not accessible to those with little or no enough finance.

● Having to remove such a massive amount from your account is discouraging.

● They are saddled with the responsibility of maintenance and repairs. 

Solar Loans

As the name implies, you can pay for solar panels with a solar loan. These loans are intended for the payment of solar energy installations. With the solar loan, you can use your solar panel system in your home straight away by putting little or no money down as a payment. Solar loans are a great choice if you have strong credit and need more money to buy solar panels all at once.

However, solar loan applications can take a long process, and you might get rejected if your credit score needs to improve. Also, taking this loan requires you to pay monthly interest— making it more costly than buying your home solar panel system outright.

Solar loans come in two categories, which are unsecured and secured loans. An unsecured loan does not need collateral, putting the interest on the high side. A secured loan requires collateral, making the interest on the low side. The goal is to pay off the loan within the given time so that the customer can have ownership of the solar installation. Find out more about secured and unsecured loans by visiting https://www.nerdwallet.com/article/loans/personal-loans/secured-vs-unsecured-loans. 

Benefits

● You will have access to the solar even though you are still paying off the loan.

● The loan and payment schedules are on flexible terms.

● There’s no huge down payment. 

Drawbacks

● If you can finish paying your loan after the due time, the interest might increase.

● Some people might need to be qualified for this loan due to their poor credit scores.

● You may default on payment, which can land you in a financial crisis.

● Taking a loan might affect your financial freedom. 

Solar Leases or Power Purchase Agreement (PPA)

Solar leases or PPA were once a popular option for installing your solar panel system because it allows you to use solar energy in your home or business with little down payment. A solar lease is like renting a car or a property where you have to pay monthly or yearly installments to a third-party company that owns that property (solar installation).

The amount you pay for solar leasing is usually 10% and 30% less than the present amount you pay for energy (electricity); this will enable you to save more money. Some solar lease payments are locked at a fixed rate, while others increase annually. With this option, you don’t have full ownership of the solar installation; it belongs to the third-party company— which is responsible for the installment, maintenance and repairs of the solar panel system.

Finally, you won’t be eligible for any tax incentives or rebates from solar energy. Also, houses with solar panel systems usually sell for 3% to 4% higher than houses without solar. But with solar leases, that might not be the case because the new owner might want to avoid getting involved with the monthly payment for solar PPA. 

Benefits

● The maintenance and repair expenses are on the third-party company.

● The lease amount is usually a little smaller.

● This financing option is straightforward and requires less paperwork.

● You can predict your yearly or monthly expenses because the price is usually fixed. 

Drawbacks

● You can never have full ownership of the solar panel system.

● You will always wait for the third-party company to come for repair and maintenance.

Other Ways of Financing a Solar System

Apart from the three main ways of financing a solar panel system, there are other possible ways, like renting and a home equity line of credit (HELOC). You have to carefully consider each option and determine the one that works for you best before financing and installing your solar panels.

Also, do a background check on the top solar companies to get their price and how reliable they are before getting your solar panel system.