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Solar Financing 101: Choosing A Payment Plan That’s Within Your Budget

by | Solar Financing | 0 comments

Understanding the benefits of solar power is a no-brainer.

Clean energy, more savings, and it’s better for everyone.

But what about the upfront cost of going solar?

We don’t know about you, but not everyone is willing to fork over a significant amount of dough, wait about 10 years or so, and then see a big payback.

Financing institutions recognized this problem in 2013 when only a select few solar providers could offer attractive, zero-down financing and immediate savings from day one.

Since then, a multitude of reputable, solar financing institutions have stepped up to the playing field, offering you more payment options to choose from and a bigger network of solar providers to work with.

So now that you have access to these options, the question is:

Which one is right for you?

Read on to see which solar financing options we recommend, and which ones you should likely stay away from.

Types Of Solar Financing

Currently, there are three very different ways to finance a solar system.

They are; solar leases, solar PPAs, and solar loans.

Each one has their own pros and cons depending on how you want to save and what your budget is like.

Solar Leasing

A solar lease lets you “rent” a solar system from a third party owner with little out-of-pocket expense.

Entering into a lease agreement means you will pay monthly for the solar equipment that becomes installed (typically at a lower rate than what you would be paying for electricity) by putting a lien on your home.

The third party owner will install the solar panels for you, and shoulder any upfront permitting, design and engineering costs. Although it is rare, the third party owner is responsible for any maintenance and repairs if a cell becomes defective or unusable.

Typical savings with a solar lease range from 10 to 30 percent of your electric bill. Since you do not own the system, the third party owner will be able to take advantage of tax credits and other incentives.

Home solar leases normally last 20 to 25 years, while commercial leases can range from 7 to 20 years.

Selling Your Home With A Lease

If circumstances change and you want to sell your home, you must transfer the remainder of your current lease to the potential buyer of the property, or buy the system from the third party owner and include it in the sale.

Note: If you plan on transferring your lease, most solar financing institutions require that the potential buyer passes a credit check before taking over the lease, which can significantly slow down the process of selling the home. Additionally, transferring a lease can mean less offers on your home and therefore increasing the variance that you will actually sell your property for its true market value. While in escrow, some deals may fall through if they are not planned out for appropriately, depending on the terms and conditions of the lease.

For this reason alone, we do not recommend leasing as your best solar financing option.

Solar Leasing Pros

  • $0 out-of-pocket
  • Pay monthly
  • Immediate savings/payback

Solar Leasing Cons

  • Fewer savings than other options
  • No additional home equity
  • Moving or selling can be tricky

Should You Finance On A Solar Lease?

Solar leasing can look like an attractive option to get started, but selling your property can become a complicated process for the seller, buyer, financing institution, and any realtors involved.

It is ultimately up to you to decide what you need, but from years of experience, we do not suggest getting a lease.

A solar loan (different from a lease) lets you achieve the same end-goal, without any of the negative repercussions from signing a solar lease or solar PPA.

Solar PPAs

Often times the term “PPA”, or power purchase agreement, gets used incorrectly to describe a lease, but the way in which you pay for them are fundamentally different.

While the benefits of each are practically the same, a power purchase agreement as the name suggests is an agreement between you and a third party owner in which you buy the energy that the panels produce instead of renting the equipment.

To understand how a PPA works, imagine this new scenario:

You go solar by financing with a PPA, and the system is installed for nothing down. At the end of the month, instead of paying your electric bill to the utility, you pay the solar provider for the electricity gained from the system at a low, agreed upon rate. Any excess energy that was not covered by your system gets paid to the utility.

After it’s all said and done, you save money each month by paying a smaller electric bill.

Selling Your Home With A PPA

Selling your home with a solar PPA is exactly the same as if you were selling it with a solar lease.

The same pitfalls can arise if you are not diligent about the time allocated for selling your property, or you do not have the means to buyout your PPA.

Solar PPA Pros

  • $0 out-of-pocket
  • Pay monthly
  • Immediate savings/payback

Solar PPA Cons

  • Fewer savings than other options
  • No additional home equity
  • Moving or selling can be tricky

Should You Finance On A Solar PPA?

Just like a solar lease, we believe that there are better solar financing options available to you if you qualify for them.

Although it’s easy to get started with a PPA, we suggest comparing solar loans as well, because they generate more savings over the long run.

Solar Loans

Unlike a solar lease where you agree to “rent” the equipment, getting a loan means that you’ll own the system while you generate solar power. You make monthly payments until the service and equipment are paid off.

How fast and how much you want to save is up to you.

Solar loan providers offer a variety of payment periods and interest rates for you to choose from, giving you the opportunity to decide which payment period is the best for your budget.

Payment periods with a solar loan can range from five to twenty years and interest rates can start as low as zero percent for those who qualify.

Usually, homeowners save anywhere from two to five times as much with a loan than a lease.

Selling Your Home With A Solar Loan

Selling or moving your loaned solar system is the same as if you own your washer and dryer.

Since you own your solar system instead of “renting” it, you can decide to take it with you when you move or sell it back with the home for additional equity.

If you decide to sell your property, the additional equity from your system will help you sell faster and for more money.

While we can’t guarantee what your property will appraise for, it’s pretty common for homeowners to recoup nearly 97% of the incurred system costs as equity, according to Forbes.

Similarly, Energy Sage states that homeowners can even resell for up to 154% of the original system value.

But most likely, your system will usually resell for around $4 per watt in the state of California or $3 per watt anywhere else.

Comparing that to installation prices ranging anywhere from $3.50 to $4.50 per watt makes for a 67% return on the lower end and 85% normally… that’s not too shabby considering a small kitchen or bathroom remodel can do the exact same.

Keeping The System If You Move

Thinking about keeping the system during your next move?

Many installers will help you store and re-install your solar panels for you at a minimum price point (usually around $1,000 to $2,000).

While this may set you back a year or two into your savings, it could still be beneficial for you in the long run.

Before deciding to move your panels though, we recommend that you consult an energy expert to make a smart decision.

You may find that where you’re moving has much lower electric rates and that you will actually save more if you sold the system with the home.

Or you may find that the roof is not optimal for solar and that there are trees or other obstacles preventing direct sunlight from hitting the roof.

Choosing A Secured Or Unsecured Solar Loan

Solar loans can be categorized as either secured or unsecured.

But don’t let the words used to describe these loans fool you. Both of them have their benefits.

Secured loans are typically offered by national lending institutions and credit unions.

A secured loan requires that you offer an asset as collateral for the money you are borrowing, such as your home.

These loans offer longer terms and lower interest rates, but if you default, the lender will resort to repossessing your home.

Obtaining a secured loan also takes several weeks and requires a strong debt-to-income ratio and/or credit score.

Examples of secured loans could be:

  • FHA loans
  • PACE financing
  • Home equity loans
  • Other lines of credit

On the other hand, an unsecured loan is offered depending on how optimal your credit is, and whether a financial institution believes you will be able to make on-time payments.

Through an online credit check, you can know whether you qualify for an unsecured loan within minutes after submission.

Unsecured loans don’t require your home as upfront collateral and are much faster to obtain. They may come with slightly higher interest rates as well, but they allow you to save more right off the bat.

Should You Finance On A Solar Loan?

Today, unsecured loans are the most common form of solar financing and secured loans can open up the door to immense long-term savings.

Each come without the drawbacks of a solar lease or PPA, help you save more, and give you better options when it’s time to sell your home.

We recommend a solar loan for those who are looking to easily go solar and pay nothing out of pocket.

While a lease or PPA can offer many benefits, we see more positive reasons to apply for a solar loan instead.

How Do I Apply For Solar Financing?

Homeowners and business owners alike ask us all the time:

How do I apply for solar financing? And where do I begin?

At Apex Solar Solutions, we understand that going through the process of comparing loans and/or leasing agreements on your own can be a daunting task.

But with a little bit of outside help, it’s not a problem at all.

To get started, you first need to understand the real cost of going solar.

Only then, does it make sense to apply for a loan or compare leasing options.

So, choose an installer who understands your scenario from all angles and request a system design that’s been modeled to your home before proceeding any further.

Once you’ve received a custom design, you can work with your provider to get a complete overview of all your loan and leasing options.

They can help you apply for loans as well, and walk you through which options might be best suited for your budget.

Putting It All Together

Having a system custom designed and modeled to your home is the easiest way for anyone to get started.

Getting a quote from a solar provider will typically come with plenty of unsecured loan options for you to compare, leasing agreements, or you can explore more options on your own with other lending institutions.

If you choose to finance the solar system, ask plenty of questions before making a commitment (it never hurts) and get those who are a part of the decision-making process involved and on the same page.

Remember that this process does not need to be extremely complex and that the financing process should become much easier for you by working with a local installer.

Here’s to big savings on your journey to zero-down solar!