It’s no secret that solar is a great investment for your home. Not only is it beneficial to your energy bill and your impact on the environment, but it also adds substantial value to your home. However, figuring your solar financing options can be overwhelming and confusing.
There are essentially three ways to “purchase” a solar PV system: purchasing outright, solar loans, or solar leases. Each option offers its own advantage, so below is a simple explanation of the three solar financing options, including the respective pros and cons of each.
New to solar? Start with this Beginner’s Guide to Solar Energy
If you can afford it, purchasing solar panels in cash is a great way to go solar. You truly own your power and are protected from the power market while your panels are producing energy. Homeowners who choose purchasing outright are able to take advantage of all federal and regional tax credits and incentives. Paying with cash puts you in a stronger position when negotiating with the solar company and should get you the best price on your system!
Pro: Bought and paid for. You are the sole owner of your system and the energy it produces.
Con: Potentially using up a chunk of your income or savings.
Tips: Make sure your system comes with a strong warranty that covers workmanship and labor if something should go wrong.
Purchasing outright is obviously not feasible for many. Solar loans or using a home refinance might be one route to pay for a solar PV system. Another option is using a Solar Lender. A couple of major advantages to this option are $0 out of pocket and low monthly payments. Here are a few more pros for a financing option:
- Interest rates range from .99% – 7.99% with terms from 5 years to 25 years.
- No prepayment penalties
- Take advantage of the tax credit
- No Lien on your home
- PACE is a government program that allows you to borrow against the equity of your home for Clean Energy Projects. This is a great option for people with low FICO scores but has equity in their homes.
Con: There’s usually a loan cost (known as a Dealer Fee) that is added to your initial price when you finance.
Tips: Most loan programs require you to pay down a portion of your loan (amount of the tax credit) within the first 18 months. If not, the loan re-amortizes, and your monthly payments increase. Know what your options are in order to keep the cost within your budget.
Solar Leases or PPA
Solar leases or using a Power Purchase Agreement (PPA) allow you to have all the benefits of going solar without having to purchase a system in its entirety. In a nutshell, solar leases essentially mean renting out your roof space for a system and purchasing the energy from your electric company at a much lower rate.
With a PPA, you pay for the amount of electricity you use each month. With a lease, you pay a fixed amount every payment based on what the energy company estimates your solar PV system will produce. The difference in what you pay and what you use is trued up each year.
Pros: Lower energy bills and a lower environmental impact.
- There is usually an escalator around 2-3% built-in; raising your cost each year.
- Not eligible for the tax credit
- Unfortunately, it can hurt your home value should you choose to sell.
Tips: Ask about options to purchase your system outright down the line to help facilitate a future home sale. Even though leases are transferrable, most home buyers are reluctant to take over payments for an existing system.
We hope this simple explanation gives you some insight into the different solar financing options available for paying for your home solar system. If you have any further questions or want to speak to someone directly, the solar experts at Purus Energy can help you. Contact us at (925) 281-7370.