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Solar loans: Everything you need to know

    Solar loans: Everything you need to know

    The majority of households are aware that solar panels have the potential to reduce their monthly utility expenses. However, many cannot afford the $15,000-$25,000 required to purchase a system entirely.

    The good news is that it is extremely simple to secure a solar loan that will allow you to buy a solar panel system with minimal or no down payment.

    This article will explain how solar loans function and if you should apply for one.

    What are solar loan terms?

    A solar loan is a loan used to finance the acquisition and installation of solar panels. They provide a method for households to invest in a solar panel installation without making a large initial investment.

    Numerous suppliers of solar loans provide zero-down solar loans and alternatives for prepayment without penalty.

    Solar loans are often categorised as a subset of home renovation loans. Consequently, they are offered with a variety of payment schemes, periods, and rates.

    The instant power bill savings associated with the acquisition of solar panels attracts homeowners to solar financing. The monthly bill savings can then be used to the monthly loan payment.

    However, while solar loans are handy, they provide a lesser financial return than cash-purchased solar panel installations.

    How do solar financing and the 30% tax credit interact?

    Yes, you are still eligible for the solar tax credit if you instal a solar panel system using a solar loan.

    The solar tax credit, also known as the Clean Energy Tax Credit, is a government incentive that allows you to deduct 30% of the entire cost of installing solar panels when filing your taxes.

    Numerous solar loans are intended to account for the solar tax credit. Mosaic’s solar loans, for example, allow you to re-amortize (pay down) your loan when you receive the tax credit, so decreasing your monthly loan payments.

    The most essential solar loan characteristics

    Here are the most significant loan characteristics to consider when evaluating solar loans, along with their definitions:

    comparing secured and unsecured loans
    There are two primary kinds of solar loans: secured and unsecured.

    Secured loans are secured by an asset, usually the borrower’s residence. As a result, they often offer lower rates, with APRs ranging from 3-8%. Home equity loans and HELOCs (Home Equity Lines of Credit) (Home Equity Lines of Credit) are the most prevalent forms of this type of loan.

    Another example is residential PACE (R-PACE) loans, which are backed by a lien on your property tax. PACE loans are available to borrowers with less-than-perfect credit, but they often carry a higher interest rate than a home equity loan or HELOC.

    Unsecured loans, as their name indicates, are made available without collateral. These typically demand a decent credit score, and the higher your score, the cheaper your interest rate. A solar loan’s annual percentage rate (APR) might range from 5.5% to 20% or even more.

    Solar loan rates
    Depending on your credit score, secured loans such as home equity loans and HELOC typically carry APRs between 3 and 8.5 percent. APRs for PACE loans range between 6.5% and 8.5%. These rates are typically on the upper end of the spectrum.

    The rate range for unsecured loans is significantly greater. In general, the APRs range between 6% and 30% or more. Obtaining a rate on the lower end of the spectrum often demands a high credit score.

    Solar financing down payment requirements
    Numerous solar loans are zero-down, requiring no down payment.

    In cases when a down payment is required, it is normally between $0 and $3,000.

    Solar loan durations

    There are solar loans with terms as little as three years and as long as thirty years. However, loan terms of 10 to 20 years are the norm.

    Loan duration and interest rate are negatively connected. Therefore, the longer the loan term, the cheaper the interest rate.

    Is a solar loan beneficial?

    In the majority of instances, you will save a substantial amount of money by obtaining a solar loan.

    When you purchase a solar panel system, whether through a solar loan or otherwise, you boost the value of your property immediately. According to a research by Zillow, solar panels increase the value of a home by an average of 4.1%. For a property worth $500,000, solar panels will add $21,500 in value.