Solar Panel Loans Explained: Are Solar Loans Worth It & Top Solar Loan Options

olar energy has a lot of benefits, but for many, the installation cost is a major hurdle. Fortunately, solar panel loans offer homeowners a chance to finance their solar installation at a manageable rate, avoiding the need for immediate, full payment. In this article, we'll review the advantages and disadvantages of taking out a solar loan, key factors to weigh when selecting one, and the top loan options for those who want to transition to solar power. By the time you're done reading, you'll be well-informed about loans for solar energy and whether they're the right fit for you.

What is a solar loan?

A solar loan is an ultimate solution for homeowners looking to embrace renewable energy without breaking the bank. This loan allows you to fund the purchase and installation of solar modules on your property without having to bear the full cost upfront. Essentially, a solar loan is a personalized funding solution that caters specifically to your needs. It allows you to distribute the cost of your panels over several years, typically ranging from 5 to 20, depending on the terms of your loan. By doing so, you can reap the benefits of solar energy, such as lower energy bills and reduced carbon emissions, while comfortably making affordable monthly payments on your loan at a set rate.

Types of solar panel loans

When it comes to financing a solar installation, borrowers usually have two main options to choose from: secured loans or unsecured loans. A secured loan requires collateral, such as solar modules or the borrower's home, which the lender can take possession of if the borrower defaults. On the other hand, an unsecured loan doesn't require collateral and relies on the borrower's financial history and position to determine eligibility.

Secured loans have their advantages over unsecured loans. As the risk is lower for the lender, secured loans usually come with lower interest rates and more relaxed eligibility requirements. They also offer larger loan amounts, making them a good option for those who need to finance an expensive solar system or have a poor credit history. However, there are risks associated with secured loans, including the potential negative impact on credit history and the possibility of losing collateral.

Unsecured loans, while not requiring collateral, have their own pros and cons. They don't pose the risk of losing collateral and can be used for multi-purpose loans, providing greater flexibility for borrowers. Additionally, the application and approval process for unsecured loans is typically faster than for secured loans. However, unsecured loans often have strict eligibility criteria and higher interest rates, making them a better option for those with a solid financial position and a good credit score.

Ultimately, the decision between a secured or unsecured solar loan depends on the borrower's unique financial situation and priorities. Those with a poor credit history and a need for a larger loan amount may benefit from a secured loan, while those with a strong financial position and a desire for quick approval may prefer an unsecured loan. It's crucial to carefully evaluate the rates and conditions of both types of loans, as well as any hidden fees associated with both loan types, and to use a solar calculator to determine if getting solar panels with a loan is a financially viable option.

Pros & cons of taking a loan for a solar installation

Advantages of a solar loan

• Lower upfront costs: One of the primary benefits of taking a solar loan is that it helps to reduce the upfront costs of installing solar modules. Rather than paying for the entire installation upfront, a solar loan allows you to spread the cost over time, making purchasing and installing photovoltaic panels more affordable.
• Reduced energy bills: Solar power is a renewable energy source that can help to significantly reduce energy bills. By taking a solar loan, you can finance the installation of PV panels and start generating your electricity, which can help to lower your monthly energy bills. This means that you can start saving money from day one.
• Long-term savings: These loans typically come with relatively low solar loan interest rates, making financing the PV installation affordable. By taking a solar loan, you can enjoy long-term savings on your energy bills and recoup your initial investment over time.
• Flexible payment options: Many solar loan providers offer flexible payment options, including no money down and longer loan terms. This can make it easier for you to afford the system and pay it off over time.
• Environmental benefits: Using solar power reduces your carbon footprint and helps to create a cleaner, more sustainable future. Taking out a solar loan to finance your PV energy system is a great way to make this investment in the environment without having to pay for it all at once.

Disadvantages of a solar loan

• High rates: Like any other loan, solar panel loans come with rates that can add up over time. Depending on the loan terms and the borrower's credit history, the rate may be pretty high, making the overall cost of the installation much more expensive than anticipated.
• Monthly payments: Taking a solar loan means committing to monthly payments for a certain period of time. This can put a strain on a household's budget, especially if unexpected expenses arise. If the borrower is unable to keep up with the payments, they risk defaulting on the loan and potentially losing their solar system.
• Long-term commitment: Most solar panel loans have a term of up to 20 years, which means committing to paying for the solar setup for a long time. This can be a disadvantage if the borrower wants to move or sell their home before the loan is paid off, as the outstanding balance must be resolved before the property's transfer.
• Limited options: When taking a solar loan, borrowers may be limited in their choice of solar systems and installation companies. Some lenders may require that borrowers use specific vendors or types of solar panels, which may not align with the borrower's preferences or budget.
• No incentives: Unlike purchasing a photovoltaic setup outright, taking a solar loan may not qualify you for federal or state tax credits, which can help offset the cost of your PV panels. Be sure to check with your tax professional to understand the potential tax implications of taking a solar loan.

Alternative ways to finance your solar panel project

There are several alternatives to loans for solar panels that you can consider when financing your PV panel project. Here are some options you may want to explore:

Buy solar panels

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Lease solar panels

Leasing the panels is a popular option for homeowners who want to go solar without making a significant upfront investment. With a lease, you'll typically pay a fixed monthly fee for the use of the panels, which is often less than what you would pay for electricity from the grid. However, keep in mind that you won't own the installation and may be limited in your ability to make changes to it.

Acquire solar panels through a solar PPA

A solar PPA, or power purchase agreement, is a financing option where a third-party developer owns, installs, and maintains the PV panels on your property. You agree to purchase the energy generated by the panels at a set price per kWh. This option can be a good choice if you want to save money on your electricity bills but don't want to buy or lease solar panels.

Where can you get a solar loan?

There's a variety of choices available for those considering taking out a loan for solar energy. One of the best options is to check out local banks and credit unions that offer energy loan products. They typically provide the most favorable loan terms at a lower rate, making financing your investment more manageable and affordable. Additionally, big banks now offer specialty loan products tailored specifically for residential solar panel systems, providing homeowners with more loan options to choose from.

You can also fund your solar investment by securing a loan through public-private partnerships. Local government agencies often partner with private lenders to offer solar panel loans with lower interest rates and no fees, making clean energy more accessible to homeowners who might not otherwise be able to afford it. Furthermore, some municipalities offer Property Assessed Clean Energy (PACE) solar energy financing, allowing you to repay the loan via an annual assessment on your property tax bill.

Finally, many installation companies specialize in providing solar loan products, making the process of financing your investment more straightforward and streamlined.

Factors to consider when selecting a loan for your solar installation

Principal

The principal is the starting point of your loan, representing the amount of money you borrow from the lender to cover the cost of your solar system. Essentially, it is the total expense of your installation if you were to pay for it in cash upfront. As you make payments, the principal balance represents the amount you still owe on the loan. Keep in mind that if you notice a disparity between the cash and financed prices, your loan may have additional fees.

Loan length

The loan term is the amount of time you have to repay the loan. This will typically range from a few years to several decades, depending on the lender and the loan terms. Remember that longer loan terms may come with lower monthly payments, but the cumulative amount paid over time will increase.

Rate and APR of a solar loan

It's a common mistake to mix up interest and annual percentage rates (APR). Your loan documents might list both percentages depending on your lender and the loan type. Just remember that the APR will typically be higher than the interest rate since it encompasses additional loan fees.

Think of APR as the yearly expense of credit, represented as a percentage. Interest rate, on the other hand, is the percentage you pay to borrow money from a lender in exchange for funding your solar setup.

Fees for solar loans

When obtaining a solar loan, it's typical to encounter fees such as a dealer fee or closing costs. The most common fee for solar panel loans is the dealer fee, also known as an origination fee, which is similar to what you'd expect for a home loan. These fees can either be a fixed amount or a percentage of the total solar loan amount, and they serve as a premium to compensate for the risk involved in lending money. Dealer fees vary based on the lender you choose. In certain cases, your solar loan may also involve closing costs, which are similar to origination fees, as they account for the risk that the lender takes on when closing the loan.

Tips for selecting the optimal loan for your solar energy endeavor

Want to ensure you're getting the best deal on your solar loan? Here are some savvy tips to help you out.

• First off, consider a secured loan like a home equity loan. By putting up collateral like your home, lenders take on less risk and can offer you a lower rate, ultimately saving you money over the life of the loan.
• Next, try to pay as much as you can upfront. The larger your down payment, the lower your loan amount will be, meaning you'll pay less in interest over time and reduce the overall cost of the loan.
• Make sure to avoid lenders who charge penalties for early repayment. Instead, look for ones that offer flexibility with early repayments, allowing you to pay off your loan sooner without extra charges.
• If you receive a tax refund from the solar tax credit, consider using it to pay down your loan balance and reduce the total amount you'll pay in finance charges over time.
• Choose a loan duration that suits your needs. For those prioritizing cash flow, longer loan durations can result in lower monthly payments. But if overall savings are your goal, opt for a shorter loan term, even if it means higher monthly payments, as this will result in long-term savings on the cost of borrowing.
• Lastly, do your research and shop around. There are plenty of providers to choose from, so compare solar loan rates, terms, and fees to find the best deal for you. And don't forget to negotiate!

Best loans for solar

There's a diverse range of solar panel loans to choose from, each with its own advantages and drawbacks. Therefore, it's crucial to conduct thorough research and opt for the one that perfectly aligns with your requirements. To assist you in making an informed decision, we'll give you a rundown of some of the top-notch loans for solar systems currently available, along with their rates, unique features, and benefits.

SoFi

If you're planning a significant PV project, SoFi may be the right choice for you. They offer online loans for solar installations up to $100,000, and you have complete freedom to allocate the funds as you please. The best part is that their loan has borrower fees or prepayment penalties, and if you sign up for autopay, you'll receive a discount of 0.25%.

One of the most significant advantages of SoFi is short-term loans for solar panels that can be approved and funded quickly, all without needing to appraise your project or secure your loan against your home. The application process is hassle-free and can be completed entirely online.

Nonetheless, SoFi loans for solar have some drawbacks to consider. Solar loan rates may be higher than those offered by other solar loan providers, and the loan term is capped at seven years. Additionally, you must have a credit score of at least 640 and provide two years of income verification to be eligible for a loan.

Remember that SoFi is a home improvement loan, not a solar loan, which means it doesn't come with any guarantees on workmanship. Hence, if you're seeking a loan tailored specifically for PV projects, other options with more favorable rates may be more appropriate.

Dividend

Dividend Finance is a top-notch financing company that offers affordable loans for residential solar projects. They are a prominent lender and PACE financing provider in the United States, with a vast customer base that is satisfied with their services. One of the significant advantages of Dividend is its flexible repayment terms, which allows borrowers to repay their loans at a reasonable rate that suits their budget.

Another advantage is Dividend's paperless online application process, which only takes about 10 minutes, enabling homeowners to finance their solar projects quickly and conveniently. The local solar companies provides immediate decision and quick funding, simplifying the financing process for homeowners. Additionally, borrowers who pay off their loans early won't incur any fees or penalties, thanks to Dividend's lack of repayment penalties.

Dividend offers several financing options, including a zero-down option for homeowners who don't want to make any upfront payments. The company also provides a workmanship warranty to ensure your solar system is installed correctly and operates efficiently. While Dividend requires borrowers to set up Autopay for loan repayments, it's a small inconvenience for homeowners who want to take advantage of the company's services. However, Dividend loans are only accessible through solar installers, and borrowers must have a minimum loan amount of $20,000, which may not be suitable for smaller solar projects.

LightStream

LightStream, a division of Truist Bank, is a reliable lender that provides loans for solar setups ranging from $5,000 to $100,000 with interest rates as low as 4.99% and a maximum APR of 20.49%.

One of the best things about LightStream is its same-day approval possibility. If you're in a hurry to get your solar project underway, this feature could be a significant advantage. Additionally, LightStream offers unsecured loans, and no appraisal is needed, making it more accessible for many borrowers. There are also no fees or prepayment penalties associated with the loans.

If you choose to sign up for autopay, LightStream offers a discount on your rate, making it an even more attractive option. The only downside to this is that you must sign up for autopay before the loan is funded, and if you decide against it, your rate will be 0.5% higher.

Another thing to keep in mind when considering LightStream is the requirement for a minimum credit score of 680 and income verification. If you meet these requirements, you can borrow up to $100,000, with loan terms ranging from two to twelve years.

In addition, LightStream offers a rate beat program, which means that if you find a lower rate from a competitor, LightStream will beat it by 0.1%, assuming similar conditions. This feature ensures that you're getting the best deal possible.

New American

If you're seeking a loan to finance your PV installation, New American Funding may be worth considering. While it's not explicitly marketed as a solar loan, the Fannie Mae HomeStyle Energy Mortgage program from New American Funding offers homeowners a long-term, low rate loan that can be used for a variety of energy improvements, including solar panel installations.

One of the main benefits of this loan option is the availability of low rates. New American Funding provides some of the most affordable loans for solar power, with APRs as low as 2.12% over a 15-year period. Even for longer terms of up to 30 years, the interest rates remain considerably lower than those offered by competitors. This makes it an attractive option for homeowners who want to finance their solar installations while keeping their monthly payments low.

Furthermore, there are no prepayment penalties, meaning you can pay off your loan early without incurring additional fees. However, there are some drawbacks to consider. This loan program is not specifically tailored to solar installations, so you won't find certain features commonly associated with loans for solar systems, such as a shorter loan term or no-money-down options. Additionally, your solar installation must be completed within 180 days of the mortgage note, so you'll need to have everything in order before you apply for funding.

Upgrade

Upgrade is a top-notch lender that takes a comprehensive approach to evaluating your financial situation, including your income, credit history, debt utilization, and score. This method enables individuals with lower credit scores to qualify for loans more easily. However, it's worth noting that Upgrade isn't available in Iowa, West Virginia, or Washington, D.C.

One of the best things about Upgrade is their flexible credit score policy, which makes it easier for people with less-than-perfect credit to apply. What's more, there is no minimum credit score requirement, and their loans are unsecured, which means no collateral is necessary. Borrowers can also change their monthly payment rate for added convenience. And if you want to pay off your loan early, Upgrade doesn't charge a prepayment penalty, providing even more flexibility.

It's important to note that Upgrade doesn't offer loans specifically for solar energy financing. However, you can use a personal loan for home improvements, including installing PV modules. Upgrade offers loan terms ranging from 24 to 84 months, with APRs between 8.24% and 35.97%. They also charge an origination fee ranging from 2.9% to 8%, which is deducted from the loan proceeds.

The application process is quick and easy, and everything can be done online. Customers can apply in minutes and get their proposed rate without affecting their credit score.

Marcus

Marcus, the consumer banking and lending arm of Goldman Sachs, stands out by offering borrowers nine loan term options between three and six years. This feature makes it easier for borrowers to find a loan term that aligns with their financial goals and budget. Additionally, borrowers can prequalify for a Marcus loan without affecting their credit score, which can be helpful when shopping around for loans.

Another significant benefit of Marcus's solar panel loans is the absence of fees, allowing borrowers to avoid extra expenses and simplify their monthly payments. Furthermore, the loans are available for approximately $3,500 and $40,000, sufficient for most home solar installations.

However, Marcus's highest APRs may not be as competitive as other lenders in the market, and borrowers with good credit might find better solar loan rates elsewhere. Additionally, Marcus's lower loan amounts may not be enough for those looking to install larger solar systems.

Loans offered by solar installers

Nowadays, numerous solar installation companies also offer loan options, providing customers with a hassle-free, all-in-one experience. Opting for a loan from the same installation company gives you the advantage of streamlining the process, making it more convenient and straightforward. With a single company handling everything, you can avoid dealing with multiple vendors or companies, minimizing the chances of errors or confusion during the installation process.

Companies like SunPower, Blue Raven, Palmetto, and Sunrun are well-known for their quality installation services and are also offering affordable loans for solar setups at reasonable rates. This makes it easier for homeowners to invest in solar energy without having to pay the entire cost upfront.

Conclusion: Is it worth getting a loan for your solar installation?

To sum up, a solar loan presents an attractive alternative for homeowners who want to go solar but don't want to bear the full cost upfront. It comes with numerous benefits, such as reduced upfront expenses, lower energy bills, long-term savings, and positive environmental impacts. However, there are also drawbacks to be aware of, including high rates, monthly repayments, and long-term commitments.

With a variety of loans for solar energy available, including specialty loan products from local banks, credit unions, and public-private partnerships, it's now easier and more affordable than ever to finance your PV project. Furthermore, many installation companies offer customers a hassle-free, all-in-one experience. However, it's essential to conduct thorough research and opt for the loan that aligns best with your requirements, considering factors such as rates, loan terms, and available features. By choosing the right loan, homeowners can reap the benefits of solar energy, such as lower energy bills and reduced carbon emissions, while comfortably making affordable monthly payments on their loans at a set rate.

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