Before we talk about financing options we want to be sure you understand the impacts of amortization. Most solar companies will never talk with you about this!… Amortization basically means that at the beginning of your loan the majority of your monthly payment goes towards the interest charge, with only a small percentage being applied to the principal owed. Towards the end of your loan the majority of your monthly payment is applied towards your principal. Your monthly payment stays the same, the difference is how much of your monthly payment gets applied towards paying off the principal owed.

For example, if you get a 25-year solar loan then for the first 12.5 years most of your monthly payment gets applied towards interest. If you stay in your house for 25 years then this is not an issue. But most homeowners in the US move every ~7 years!  

So why is this important to know? Because 10 years later when you decide to move you may be shocked to learn how little of your principal you have paid off. Just do an internet search for an amortization calculator to see how much you would still have left to pay after X number of years. It’s for this reason that we advise our customers to see if there’s any future income they will have coming in so they can pay off their loan early. And, it’s possible you’ll have saved so much money on your electricity that it won’t really be an issue. Just know this information before you sign on the dotted line.     

Your bank or credit union likely offers a home improvement loan or a HELOC. A HELOC is a Home Equity Line of Credit. Here’s a summary of the differences:

Home Equity Loan – A fixed interest rate, and one lump sum payment

HELOC – Either an adjustable (likely) or a fixed interest rate, draw money as you need it, pay interest only on the amount you draw, and many provide the option for interest-only payments

There are pros and cons for each, but often going this route can provide the best interest rate possible. Of course, your home serves as collateral for these types of loans.

For many a 401K or retirement savings loan may be a good option. The advantages are usually a good interest rate, and primarily that you’d be paying yourself back the interest instead of a financial institution. The downside is that the term (length of the loan) is shorter, usually no more than 5 years, so your monthly payments are higher. That said, if your cash flow allows it may be a great choice. You could also consider combining this approach with one of the other options listed here.

Getting a loan from a solar loan company is a popular choice for many homeowners. There are advantages and disadvantages.

The advantages are usually zero down payment out of pocket, no lien on your home, and longer terms are available (up to 25 years) that allow for a lower monthly payment. Solar loan companies work closely with local solar companies, so we can often get approval in a matter of minutes as long as all people on the title are present or are available online. The interest rates are competitive with most banks and credit unions.

The disadvantage of getting a solar loan is that dealer fees are charged, adding to the total amount owed. These are often 20-30+%, so the total loan amount is higher than other forms of financing. Unlike most solar companies we won’t sugar coat or gloss over the actual numbers you’ll want to know. And even with the dealer fees the total loan payment combined with your new electric bill is often lower overall than what you currently pay for electricity. And remember, you will no longer rent electricity from the utility company, you will be an owner!

For various reasons some people prefer to go with a solar lease or PPA. A PPA is a Power Purchase Agreement.

Many leases and PPAs are zero dollars down, but some do require a down payment. You do not own the solar system installed on your home, rather you are leasing the system or paying a reduced price for the electricity your system produces (PPA). With a lease or PPA the tax credits are not available to you, since the IRS requires that the system be purchased to qualify for the tax credit.

With a solar lease, you agree to pay a fixed monthly lease (e.g., $150 a month). Your leasing company determines this amount based on the estimated annual production of your solar panel system.

With a solar PPA, you agree to purchase the power generated by the system at a set price per kilowatt-hour (kWh) (e.g., $0.15 per kWh) instead of paying a fixed monthly amount. Because solar panels typically produce more electricity during the summer than during the winter, most people with a PPA have higher solar bills in the summer (and more bill savings) during the summer months.