Solar Panel Loans and Financing

Getting a solar panel system for your home is an exciting project. You may be saving money on your electricity bill while increasing the value of your home and helping the environment at the same time. We call that a win-win! However, many people shy away from solar because they think they can’t afford the overall upfront cost of going solar.

What most people don’t realize is that there are solar panel loans and other financing available that help make solar more affordable. With these options — including state and federal tax incentives, rebates, and credits — it’s never been easier or more cost-effective to add a solar system to your home. But how does solar financing work? Let’s find out!

Power Purchase Agreements (PPAs)

The Power Purchase Agreement or PPA is the most common method of solar financing for homeowners. It was popularized as a way for those wanting to secure more affordable solar electricity without taking on ownership of the system itself. In this arrangement, the solar system is “Third Party Owned” (TPO), typically by the solar provider, while the customer pays for the electricity that the system produces at a contracted rate.

Power Purchase Agreement Benefits: Power Purchase Agreements allow homeowners to benefit from solar and battery backup power without taking responsibility for system maintenance. PPA rates are typically locked in for the duration of the contract and even if they increase on a set schedule, the rate of increase tends to be less than that of utility rates. It is also common for a certain level of system performance to be guaranteed as part of the contract given that the system maintenance falls to the third-party owner.

Power Purchase Agreement Drawbacks: Homeowners who go solar with a power purchase agreement are not eligible to take advantage of the Federal Solar Incentive Tax Credit as they are not the owner of the solar system. However, this may not be an issue for those without a federal tax liability.

Who are These Loans Best for?: Power Purchase Agreements are widely adopted as they provide the potential for solar savings without upfront investment or maintenance costs. A solar professional will be able to provide further guidance on whether or not this solar financing option makes sense for you given your tax situation.

Neighborhood houses with solar panels view from a birdseye

In-House Financing

Many solar businesses offer solar panel loans and financing through their own company or a third-party lender. A in-house solar loan allows homeowners to take ownership of the solar system and benefit from available tax incentives while paying overtime. It is often possible to go solar for little to no upfront investment through in-house financing. These loans are typically unsecured and offer varying payment plans to meet your budget needs better.

At Axia, we work with EnFin along with other loan providers for our in-house financing, ensuring that we offer you the best financing options available.

Learn more about Axia’s in-house financing by clicking the link below.

Solar Financing

Home Improvement Loans

IF you want to handle financing for your solar system yourself, there are plenty of alternatives in the market. You can apply for a home improvement loan through a bank, credit union, or online lender. Home improvement loans are typically a good option if you’re looking for solar financing with a fixed interest rate and monthly payment.

Advantages of Home Improvement Loans: A home improvement loan gets paid out in a lump sum, meaning you have access to the cash faster and can easily make larger purchases — like solar panels. Interest rates for these types of loans are also generally lower than other options, and you don’t have to put up any collateral if you have an unsecured loan. Additionally, you can get longer terms with a home improvement or solar loan, which helps keep your monthly payments low and makes solar financing more affordable.

Disadvantages of Home Improvement Loans: Home improvement loans often require processing and origination (or dealer) fees in addition to the loan amount, which can add to the overall cost. A home improvement loan may be the right choice if you’re looking at solar panel loans and financing options and need the money quickly. Borrowers looking for low fixed monthly payments may want to consider this type of loan.

Around 85% of PV solar systems are financed in the U.S.

Home Equity Loans and HELOCs

For homeowners with a lot of equity in the property, a home equity loan or home equity line of credit (HELOC) could be a good source for solar panel loans and financing. Using a home equity loan is similar to a personal loan because you’ll get a fixed interest rate and repayment timeline while also having consistent monthly payments. For a HELOC, you are borrowing against a line of credit and may end the varying monthly payments.

Advantages of Home Equity Loans and HELOCs: Home equity loans generally have lower interest rates than unsecured home improvement loans. You can also get higher borrowing limits and have fixed monthly payments, and you may even be able to deduct the interest on your taxes. A HELOC loan typically has lower upfront costs compared to a home equity loan and can have lower interest rates. Additionally, interest is only charged on the amount you use, not the entire loan.

Disadvantages of Home Equity Loans and HELOCs: A home equity loan can come with expensive closing costs, and you risk losing your home if you can’t repay the loan. For HELOC loans, monthly payments can fluctuate, missed or late payments put your home at risk, and you may be subject to additional fees from your lender, increasing your price.

Who are These Loans Best for?: If you have significant equity in your home and feel comfortable borrowing against it, these loans could be a good way to get the solar financing you need for your home solar system.

Learn more about the cost of a solar installation for your home.

How Much Does Solar Cost?

FHA and Fannie Mae Loans

Solar panels are considered a home improvement upgrade, so it only makes sense that there are mortgage-type loans that would work for solar financing. For both the FHA 203(k) and Fannie Mae HomeStyle Renovation loans, new homebuyers and existing homeowners can add financing to their mortgage loan to cover home repairs or remodels, including solar panels.

Advantages of FHA and Fannie Mae Loans: With both options, the mortgage loan and renovation loan are combined, meaning you’ll only have one monthly payment. Fannie Mae loans can be used for renovations on primary residences, vacation homes, or investment properties and can cover “luxury” upgrades like adding a pool or hot tub.

Disadvantages of FHA and Fannie Mae Loans: For the FHA loan, borrowers must have FHA mortgage insurance, possibly meet with a 203(k) repair consultant, and live in the home as their primary residence to qualify. Fannie Mae may take longer to close on compared to conventional mortgage options. Additionally, not all mortgage lenders offer HomeStyle Renovation loans.

Who are These Loans Best for?: If you’re looking to purchase a home and add a solar system at the same time, these loans are an excellent option for solar financing. If you currently own a property and want to refinance, you may be able to transition to one of these loans to help you get a better deal.

What to Look For In An Unsecured Solar Loan

An unsecured loan does not require you to put up any collateral to back the loan. Many people look at unsecured options for solar panel loans and financing since they can secure the funds for the system without putting a lien on one of your assets.

These loans can be used for different projects, making them multi-purpose loans that are very attractive to borrowers. Nowadays, unsecured loans are more flexible, with lower interest rates and larger loan amounts.

Our solar financing partner, EnFin, provides affordable residential solar loans and is backed by the leading US solar manufacturer, Qcells, which allows them to offer the best rates for your home solar installation. You can learn more about our financing options by speaking with a solar advisor today.

Annual Percentage Rate

An annual percentage rate, or APR, is the total cost of your loan with interest and fees. The higher your solar loan rates, the more you can expect to pay overall. If you have good credit and a low debt-to-income ratio, you may get a lower interest rate from your lender.

Loan Term

The loan term is how long you have to pay off your loan. A longer term, like 15Y, gives you a lower monthly payment since it is spread out over more time, but you’ll pay more in interest. On the other hand, a loan term of 48 months will help you pay off the loan faster, but you’ll have a larger monthly payment.

Additional Fees

Most unsecured loan lenders charge an origination fee, which is essentially the cost for them to process and service your loan. This fee can be anywhere from 1% to 10% of your total loan amount, which you’ll need to consider when choosing the right solar panel loans and financing for your needs. You may also be subject to late fees, prepayment fees, and fees for payments that don’t go through.

Origination fees range from 1% to 10% of your solar loan amount.

If the above options won’t work for your solar financing needs, you could consider in-house financing through a solar company.

Ready to Electrify Your Life?

With various solar panel loans and financing options available, it’s a smart decision to switch to solar. If you’re ready to install solar panels on your home or just want to learn more about the benefits of solar, you can contact our Axia team today. Let us and our partner EnFin help you finance solar and electrify your life the simple way!

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Want to learn more about how solar works? Check out these related articles. Have a question you can’t find an answer to? Contact us or chat live with an expert today.

a white piggy bank stacked on top of a solar panel