Options for Financing Solar Panels

Investing in your energy independence and a way to increase the value of personal real estate are the companions of installing solar power plants in homes. But financing for solar projects is expensive, and installing panels can significantly reduce energy costs or eliminate power from the mains.

There are several options for how you can finance solar panels – cash from your savings, taking a loan, or leasing. The high cost of equipment for solar stations does not allow the vast majority of citizens to take huge sums at once. Therefore, it is worth considering various solar financing options private and public entities offer.

The Bank Rate Guarantee

Taking a solar installation loan from a banking institution is the best choice. The companies that sell solar installations themselves offer various payment options for equipment. But you should approach the choice of a lender thoroughly.

You must visit several well-known solar energy loan institutions and compare the interest rates. It is better to contact the banks whose services you use since they can offer more loyal loan repayment terms and low-interest rates.

However, not all banks lend to solar energy, and it’s important to clarify this when applying. As a borrower, you can count on attractive solar loan interest rates in the following cases:

• If you have a good history of credit obligations, banks can treat you favorably as a prospective client without credit debt.
• If you understand price rates, you should not agree to the first offer since miscalculating is a big risk. Besides, it would help if you compare the offers different lenders provide.
• Suppose you’re looking for a secured loan. In that case, the lender makes sure that the borrower, offering his asset (for example, a house) as collateral, will regularly make a solar panel monthly payment.
• If you’re considering making a high down payment, remember that the higher the amount, the lower the solar panel loan interest rates.
• Suppose you’re considering finding a guarantor. If that’s the case, remember that the presence of a person ready to vouch for the borrower will increase the chances of approving good solar financing rates.

Lenders can arrange a loan at a fixed or variable rate. The floating option can become a problem, so it is much safer to choose stable interest rates.

The higher the borrower’s credit rating (from 650), the more loan offers will open to the applicant, including those with loyal annual interest. The best option is from 4% to 9%.

The duration of bank loans is variable. Different banks give loans for solar panels for 3 to 30 years, depending on the situation, the size of the loan, and the client’s solvency.

Various incentive schemes operate on solar system loans to spread solar energy. The most significant discounts are offered as a federal tax credit for SES, and its essence lies in the repayment of 30% of loans for solar systems from income tax.

How Much Are Solar Panels?

The total cost of paying for solar panels includes the price of a certain type of solar equipment and the cost of installing it. The price range is from 18 to 34 thousand dollars.

The efficiency and price of solar power plants depend on the type of batteries. Let’s look at the most common battery types:

• Thin-film: Universal panels with high resistance to heat and low efficiency. They’re mainly used for industrial and commercial purposes.
• Polycrystalline: Affordable batter type, but it has low efficiency due to the design and individual silicon crystals.
• Monocrystalline: The most efficient batteries are formed from square-shaped solar cells made from a single silicon sheet.

Solar roof financing also includes operating costs and maintenance, up to 15% of the price of solar power plants.

How Much Can I Save by Switching to Solar Power?

Savings from installing solar panels are not immediately felt. The result will affect the owner’s financial condition after the equipment’s payback, which is from 6 to 12 years. This indicator depends on the cost of equipment, capacity, and amount of electricity generation, taking into account the climatic features of the region.

You can independently calculate the profitability of a solar installation as follows:

Step 1: Take the amount for the panels and add a payment for installation work from the contractor.

Step 2: Calculate the percentage amount that the owner will receive in his place of residence (tax benefits, discounts).

Step 3: Calculate the annual savings on electricity consumption by adding income from the sale of excess solar energy to utilities.

Step 4: Divide the result by the annual profit after calculating all the actual costs of financing solar energy at home.

The result of calculating this formula will be the number of years required to repay the loan. The investment potential of solar energy in the country is large. 

Before purchasing equipment, check whether the net metering program is valid in a particular region. It will make it possible to sell excess energy generated by solar power plants to the central power grid and receive funds to pay off the solar system loan.

Cheapest Ways to Finance Solar Panels

Cheap methods of solar panel financing include:

• Leasing
• Personal lending
• Subsidized contractor

Personal loans for solar can be unsecured when it is not necessary to deposit to allocate funds for the purchase of equipment and secured when issued against the security of valuable property.

With a secured type of loan, there are more chances to get money at a low-interest rate because the delay in the monthly payment for solar panels means the loss of the pledged asset. The advantage of personal loans is quick access to cash, issued in 1-2 days. A disadvantage is that low-interest rates are only available to borrowers with good credit scores. Without it, financing turns out to be at high-interest rates per annum.

The leasing program does not provide for the purchase of solar panels but for their rental in the company. After installation, the company can immediately utilize energy-saving opportunities without a down payment. A small rent is more profitable than using electricity from the grid. The disadvantage of the program is that the user will not qualify for tax benefits and will not become the owner of the panels.

Contractors installing solar power plants can offer their version of the solar loan program. The bottom line is that the contractor himself will attract a lender for a loan. The advantages of this financing option are lower solar loan rates than loans secured by real estate. The lender will pay the contractor’s bills on time, and the owner of the solar station will only have to pay the interest on the loan.

The downside of this method is the interest increase and the loan’s long repayment period, up to 25 years. The lender may also charge a fee for opening a line of credit.

Fannie Mae and FHA Loans

Two types of mortgage solar power loans are Fannie Mae and FHA.  These include solar residential financing, where the borrower receives funds to buy a house and panels simultaneously.

Fannie Mae’s lending is much easier. It allows you to claim an amount similar to 97% of equipment and real estate costs with the possibility to use credit funds to modernize SES and refinish the current mortgage.

An FHA loan does not prohibit the borrower from using the money received to improve the home and improve energy efficiency properties. The only exceptions are luxury goods, such as a swimming pool.

Here are some of the loan features:

• Long-term mortgage from 15 to 30 years
• Low solar panel loan rates ranging from 4%
•  to 6%
• Ability to apply for a loan available to people with a credit score up to 500

The disadvantages of the program are mandatory mortgage insurance and the requirement that contractors begin work for 30 days.

This option suits borrowers not eligible for loans with good interest rates. The principal difficulty here is that the FHA will carefully control the borrower’s spending (who must use solar lending clearly for its intended purpose). Such monitoring allows you to stay within the budget and buy only the necessary system components.

Source: ICB Solutions 

Loans for Home Equity and HELOCs

The great value of a borrower’s home is potential capital, against which lenders are willing to lend. The banks can narrow the applicant’s home equity for the project by issuing a home equity loan for solar stations to 85%.

The principle of operation of HELOCs (a line of credit secured by real estate) is similar to personal loans. The following features characterize it:

• Floating interest rates
• Stable loan repayment periods
• Regular monthly payments

Source: The Truth About Mortgage

The advantages of the HELOCs system are to provide a client with a line of credit, use the equity on collateral, and receive a large amount without excessive rates or even interest-free solar panel loans. Downside programs are characterized by a more complicated process of applying for a loan and receiving only 85% of the house’s value.

That is a relevant offer for people who want to increase the financial value of their house by installing a source of clean energy with the prospect of a subsequent sale of the property. Residential solar financing is suitable for those with credit debt on another loan who cannot take a personal loan for solar installation.

Benefits of Solar Panel Taxes

The state stimulates the distribution of solar stations, taking care of the environment. Special programs have been adopted to help people pay off solar panel loans faster. Costs for solar energy finance may gradually increase, but tax incentives will help offset the unexpected expenses.

The best incentive for borrowers is ITC. his investment tax credit allows you to calculate up to 30% of the total amount of the solar station system. The validity period of the tax incentive in 2033 has decreased to 22%, and in 2035 the law on lowering the general level of prices for solar stations will cease altogether.

You can get the right to approve solar financing projects under ITC in the following cases:

• The installation of solar panels is from 01/01/2006 to 12/31/2023.
• SES has a location in the exact place of residence of the applicant.
• The solar equipment was new.
• The panels are purchased, not rented.

Solar loans may be subject to local discounts the city, county, or state provides, which are government incentives to encourage solar energy installation.

Check with your utility companies to find out if local incentives are available. They are accrued after the approval of the federal loan for solar system tax. Some states offer to exchange excess solar power for a credit on your electricity bill.

Subsequent Actions in Solar Panel Installation

In some regions of the country, equipping new homes with solar stations is not a privilege but a requirement of the authorities. Their installation lies in the environmental aspect: it contributes to spreading renewable energy sources and lowering utility costs.

There are many factors to examine before considering solar financing. Understand what kind of solar power plant performance you can count on in your climatic conditions. Then, collect real feedback from people who have already installed the panels to understand the advantages and disadvantages of the systems on the market.

The final step before buying solar panels involves a detailed calculation of the financial opportunities and risks that various forms of loans for solar power entail.

You should accurately calculate the final amount for all the installation, purchase, and maintenance of the solar system. But remember this: by finding a lender and a financing program that offers the best conditions for a loan, you can avoid rushing, falling into a debt hole, and losing existing assets.