The reason why over 2.5 million homeowners in the U.S. have chosen to install solar systems in their properties is because it’s a wise investment that boosts your property’s value and cuts your electricity bills by tens of thousands of dollars.
Solar panel systems are designed to last for 25 years or more, and they cover the majority or all of your monthly electricity expenses. These savings accumulate rapidly: if you’re currently paying $150 a month for electricity, you could end up spending more than $65,000 on electricity over the next 25 years.
By opting for solar, you can prevent a significant portion of these future electricity costs. Just like with any home improvement or upgrade, it’s crucial to explore all the financing options before deciding on solar panels.
What are your solar financing options?
There are three primary methods to finance your home solar system: paying in full with cash, securing a solar loan, or opting for a lease or power purchase agreement (PPA).
If the upfront cost of your system is beyond your budget, solar financing options like loans and leases enable homeowners to afford solar systems by spreading the expense over time. On average, a solar panel system costs approximately $25,000 on EnergySage’s platform, not counting the cost of installation.
The two most economical methods for financing your solar system are through a cash purchase or a solar loan.
In general, these two approaches are considered the best for going solar as you either own the system outright or at the conclusion of your loan. With a cash purchase, you pay the full price upfront and are free from any further payments. Choosing a solar loan is akin to financing a vehicle or paying off a mortgage — you’ll need to make fixed monthly payments over the loan’s duration, typically ranging from five to 25 years.
The third option for funding a new solar system involves signing a lease or power purchase agreement (PPA). However, these options may not be the most financially advantageous as, despite investing tens of thousands of dollars, you won’t own the system by the lease’s end. For instance, leasing a solar panel system for $100 a month over 20 years results in spending $24,000 on solar energy over two decades, yet at the lease’s conclusion, you won’t own the system despite spending nearly the same amount as if you had purchased it.
Cash purchase
Financing your solar panel system with your own money is the most effective strategy for saving on solar energy. You avoid extra interest charges that come with a solar lease, and your energy bills will be covered for the next quarter of a century. Owning the system means you’re shielded from any future increases in electricity prices, and you’re eligible for all the financial perks and discounts available to homeowners who switch to solar.
The primary disadvantage of paying in cash is the high cost. If you decide to pay for your system with your own funds, you’ll need to have sufficient money on hand to cover the full cost of the system, which could range from $20,000 to $30,000, not counting the cost of installation.
Solar loans
Another primary method to finance a solar panel system for ownership is through a solar loan.
Solar loans are an attractive financing solution for solar energy systems if you’re unable to make a one-time payment upfront because they enable you to adopt solar energy without any initial investment. However, the trade-off is that you’ll be paying interest on the borrowed amount, making a loan a more costly option compared to paying for your solar energy system in cash. As with any loan, the better your credit score, the more favorable the interest rates will be, and the lower your overall expenses will be in the long run.
There are two primary categories of solar loans: unsecured and secured loans. An unsecured loan does not require any collateral for approval, typically leading to higher interest rates compared to a secured loan. Conversely, a secured loan usually offers lower interest rates due to the requirement of using your home as collateral, which poses a risk if you fail to make your solar loan payments, as the lender may foreclose on your property. Other financing options to consider include personal loans or home equity loans, but these also come with their own set of disadvantages, such as even higher interest rates or the need to use your home as collateral.
No matter the type of loan, it’s crucial to only borrow what you need to minimize interest payments. It’s also essential to thoroughly review the loan’s terms and conditions to avoid unexpected fees. Skipping over the details could lead to additional charges.
Tax benefits and rebates for solar panels
You can receive rebates and incentives to assist in covering the expenses of solar panels, significantly reducing your out-of-pocket costs. The most beneficial incentive is often the federal solar tax credit, also referred to as the investment tax credit (ITC), which offers a 30% reduction in the cost of your solar panel system from your federal taxes. This credit is scheduled to remain at 30% until 2033, after which it will decrease to 26%. There’s no limit to the amount of the system that qualifies for this credit – you can claim a 30% deduction on the total cost of your system, regardless of its initial price.
Additionally, state and local incentives may be available based on your location. States like New York, Rhode Island, Iowa, Connecticut, and Maryland are among the most supportive in offering solar tax incentives.
Can you rent solar panels?
You have the choice to rent solar panels or sign a power purchase agreement (PPA) with a utility company, but typically, neither of these choices offers the same financial advantages as owning your own solar panels. Purchasing solar panels directly is the most economical method for solar energy, but if the upfront cost is too high, think about getting a solar loan. Many solar loans don’t need a down payment, making them a budget-friendly choice. Additionally, your monthly loan payments are usually less than what you would pay for a lease.
Owning solar panels is crucial because it allows you to take advantage of the federal solar tax credit, which can save you thousands of dollars on your solar system. When you lease your solar energy system, the leasing company is the one who claims the solar tax credit, along with the savings that come with it, because they are the legal owners, not you.
