What to know about solar loans
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Solar panels can potentially save homeowners between $10,000 and $30,000 in electricity over the life of their solar system, according to the EnergySage solar market. And the potential for tax credits can increase the benefits of solar power in the home even further year over year.
But installation doesn’t come cheap — around $20,000 on average, EnergySage reports. A solar loan could help cover the cost, so if you’re considering going solar, it’s important to know how solar financing works, whether it’s worth getting solar panels, and the tax benefits of a system. of solar panels.
Visit Credible to learn more about personal loans for solar panels and see your prequalified rates.
Solar loans are similar to home improvement loans. These unsecured personal loans help you finance the installation of solar panels for your home, and they do not require collateral. Instead of paying all expenses up front, you spread your payments over several instalments.
If you are approved for a personal loan, you will receive a lump sum (usually by direct deposit). One of the best features of personal loans is that you can get your money fast – some lenders even offer same-day financing. You’ll make monthly payments with a fixed interest rate and typically have a repayment term of between two and seven years.
You can apply for a solar loan from a personal lender or directly from a solar panel company that offers in-house financing.
Installing solar panels is expensive. The average five-kilowatt residential system can cost between $15,000 and $25,000 before tax incentives and credits, according to the Center for Sustainable Energy. And it takes an average of six to nine years to recoup those costs.
To determine if the cost of installing a solar panel is worth it, ask yourself a few questions:
- How much electricity do you currently use and how much does it cost?
- How much sunlight does your house get? (Homes in states with year-round sunlight, such as Arizona, may benefit more from solar panels than homes in rainier climates, such as Washington.)
- How big of a solar power system would you need to install?
- Would you buy or rent your system?
After considering these factors, compare quotes from a few different solar companies. Then, get prequalified for a personal loan and compare personal loan rates and terms to financing options offered by solar companies. Finally, compare the total costs of financing the solar installation to the estimated savings the solar panels will provide over the life of the loan.
You can use The Credible Personal Loan Calculator to see how much you’ll pay over the life of a solar loan from a personal lender.
Currently, you can claim a federal residential solar tax credit of 26% of the cost of the system. If you install a system in 2023, the credit goes down to 22%. This solar tax credit is set to expire in 2024 unless Congress renews it. Visit the Office of Energy Efficiency and Renewable Energy website for more information on this tax credit.
Your state may also offer incentives for installing solar panels. Check Database of State Incentives for Renewable Energy and Efficiency to find out what tax benefits you could benefit from.
How to get a personal loan for solar panels
Follow these steps to get a personal loan for solar panels:
- Check your credit. Check your credit report for free on a site like AnnualCreditReport.com and correct any errors that may be preventing you from getting the best possible solar loan terms.
- Compare lenders. Compare multiple lenders to see which will offer the lowest rates and most flexible terms for your financial situation.
- Apply. When you identify the best rate and terms, lock them in by submitting your application.
- Receive your loan funds. If your loan is approved, you will receive your loan funds, sometimes as early as the same business day, depending on how quickly your bank processes the transaction.
Other Solar Loan Financing Options
You can also consider the following options for financing your solar panel system:
- Internal funding — Internal financing allows you to finance your solar panel installation directly through the solar panel company.
- Refinancing by collection — A cash refinance replaces your current mortgage with a new mortgage while tapping into the equity in your home to pay for another expense. But this process puts your home on the line, since you’re using it as collateral for the loan.
- Home equity loan or HELOC — A home equity loan or home equity line of credit (HELOC) also allows you to borrow money against the equity in your home. With a home equity loan, you receive a lump sum cash payment, usually up to 80% of the equity in your home. A HELOC is a revolving line of credit, unlike a traditional loan – you are allowed to withdraw as much or as little as you want, up to a set limit. One downside is that HELOCs have variable interest rates, which can increase your overall borrowing costs.
- Rental or use of a power purchase agreement — Renting solar panels is similar to renting a car: you will use the solar panel system for a set period of time. You will pay monthly installments and you may not need to put a lot of money upfront. The downside is that you won’t own this system and you won’t be eligible for tax credits. A power purchase agreement is a specific agreement in which a developer installs and operates a solar panel system on your home – you don’t own the system, but you buy the power output for a specified period. This means you can save on electricity during this time, but the system owner is the one who gets the tax credits.
- Fannie Mae HomeStyle Energy Mortgage — You can use a HomeStyle Energy Mortgage to finance energy-saving installations when buying or refinancing a home. These loans are eligible for an additional $500 loan price adjustment credit. But if you’re not buying a home or refinancing your current home, this may not be the right option for you.
Solar Loan FAQs
Here are the answers to some frequently asked questions about solar loans.
Is it better to buy or rent solar panels?
The most advantageous decision is the one that best suits your financial situation. Buying solar panels can be expensive, but you can save money in the long run. With leasing, you’ll pay less money up front, but you won’t qualify for the federal tax credit.
What credit score do you need for a solar loan?
Although it is possible to get a solar loan with a credit score below 650lenders generally offer the best rates and terms to borrowers with good to excellent credit scores (670 and above).
What happens to your solar panels if you move?
If you purchased your solar panels, you can either include them in the sale of the house when you move, or take them with you. If you rent your solar panels, you also have two options: you can buy out the lease or negotiate for the next owner to take over the lease.
How to choose the best solar credit?
The best solar loan is one that allows you to comfortably pay monthly loan payments while still being able to maintain your lifestyle and meet your other financial goals.
Can you refinance solar loans?
You can refinance a personal solar panel loan through your original lender or through another lender by taking out a new loan that pays off your original loan. Just be sure to check with your lender to see if they allow you to refinance your loan.
Does a solar loan affect your credit score?
A solar loan, or any personal loan, can improve your credit score by establish a positive credit history and create a diversified mix of credits. But if you miss payments, it can hurt your credit score.
Credible makes it easy for you compare personal loan rates from various lenders in minutes, without affecting your credit score.