Solar Panel Financing & Loan Options Explained
April 05, 2019
The benefits of installing a solar panels are many. We think everyone knows enough about the advantages of installing a solar panel. Even though solar panels saves a lot of money in the long run, many feel that its initial investments are too high. Recent advancements in technology and Government’s push towards renewable resources has reduced the cost of solar panel installation considerably.
The problem is that many are still not aware of various financing options regarding solar panel installation. This blog explores your various options when it comes to solar financing. There are affordable solar financing plans for every budget and options which works for you.
Before you dive into solar financing information, you need to first decide whether you want to buy or lease your solar panels.
Is it Better To Buy Or Lease Solar Panels?
Your decision to buy or lease a solar panel will largely affect your financing options.
The practical difference between buying and leasing a solar panel is in its ownership status. If you buy the solar panel system, you become the rightful owner of all the associated apparatus and the energy produced. If you lease the solar panel or get into a power Purchase Agreement (PPA), a third party owns the system and the energy produced.
Buying a solar panel system is a best option when…
- Want to maximize the financial returns of installing a solar panel system rather than just benefiting the environment
- If you are eligible to receive tax credits from the government
- Are a business, and planning to treat solar panel system as an asset
- As a house owner, wants to increase the value of your property.
Leasing a solar panel system is a best option when…
- You are primarily interested in just reaping the energy benefits and not interested in maximizing your financial returns
- Do not possess the capacity to make huge initial investments
- Want to avoid the responsibility of maintenance or repairs of the solar panels
- Are ineligible to receive any tax credits from the government.
The Solar Loans
If you plan to purchase your solar panel system, solar loan is your best option when it comes to solar panel financing. Solar loans are capable of funding all the costs of a solar panel system. Some loans even cover the maintenance and repair costs.
Why solar loans prove beneficial?
- Your monthly savings on the electricity bill is greater than the loan.s monthly payments, earning you profit right from the beginning.
- The loans allocated in solar financing has a similar structure and terms and conditions as a home improvement loan.
- Buy buying your own solar energy panel you are being eligible to various government subsidies and tax savings.
- Solar loans are either secured or unsecured, based on which the interest rates, term length and credit requirement is decided.
Solar Loans FAQ
What are Secured and Unsecured Loans?
- Secured loans are those where you keep an asset which serves as a collateral for the loan amount to be paid. Unsecured loans are those where your solar panel system itself is an asset. Both the loans has its own implications on the borrower.
Deciding your monthly installments
- The amount you decide to pay every month decides the duration and rate of interest you will be paying. Loans with longer terms will have a lower per month amount but you will pay a greater rate of Interest in the long run and vice versa.
The Availability Of Solar Loans
Apart from traditional banks there are several others who can help you sanction a solar financing loan
- Solar panel manufacturers: Offers loans through their solar installation network
- Government set institutions: Many government institutions offer solar loans tailored specifically for home owners and business organizations
- Public-private partnerships: Can offer solar energy loan programs. Local government agencies partner with private lenders to offer solar loans with lower interest rates and no fees
- Utilities: Offers loans to finance the solar panel systems and ask them to repay in the form of electricity bills.
Solar Leases and Power Purchase Agreement
Solar leases and power purchase agreement (PPA) are similar to renting your solar panel system.
The considerations while leasing solar panels
- With a lease or a PPA, you allow a third party owner to install a solar panel system on your property. In exchange you can pay them a below market rate to use solar energy as a part of the agreement.
- Choosing a lease or a PPA will cut down your electricity cost by 30-40%, without investing any money upfront.
- The owner will be responsible for maintaining and repairing cost of solar panels.
- At the end of the lease agreement, the owner can either enter into a new agreement, remove the solar panels or sell the panels to you at a fair market price.
What is Terms of Agreement in a Solar Lease?
The terms of agreement is the deal you sign when opting for a solar lease options. The terms mentioned in the agreement differs on the type of lease you choose. Lease and PPA terms vary across state and hence you need to explore different lease agreements and choose the one suitable for you.
The Key Difference Between Solar Lease and PPA
Even though solar lease and PPA are used interchangeably on this page and practically works the same way. There is a key difference between the two. With lease agreement, you agree to pay a fixed amount in the lease form, depending upon the electricity generated by the solar panel system.With PPA, instead of paying a fixed lease, you agree to pay the electricity bill per unit consumed.
Terms Involved In Solar Lease or PPA
The terms you need to know when you are entering into a solar lease. The terminologies may make you feel overwhelmed at the beginning but in the long run they provide you with flexibility in the event of circumstances change:
Term Length: The residential solar leases spans between 20 to 25 years length. Commercial solar panels can be customized as per your requirement.
Performance and Maintenance: The owner leasing the solar panel system is responsible for the maintenance of the solar panels and its repairing costs. Although, solar panels require a minimum maintenance cost.
Monitoring: Many solar panel dealers offers apps, devices to monitor and track your solar panel performance.
Buying the solar panel system: If you wish you could buy the solar panel system at any time during the lease term at a price defined in your contract or at a fair market price, whichever is higher.
Selling your home: If you decide to sell your house, the new house owner can continue the lease agreement. You could even buy the solar system and include it in the price of the property.
End of Terms: After the end of terms, you can either buy the solar panel system or the owner could relocate it to a different building.
Comparing Solar Loans And Solar Leases
Both solar loans and solar leases have its own pros and cons. You need to consider some factors and choose an option suitable for you.
Cash flow: Both solar loans and solar lease save money from your pocket. The monthly payment from solar loans and solar lease are lower than your general electricity bills. Solar loans however has the highest savings in the long run since the payment is spread across the span of 7 to 10 years while solar lease depends on the terms you sign in the agreement.
Long term payments: Solar loans are generally spread across the span of 10 years and has a fixed monthly installment. The tenure for solar lease depends on your terms of agreement and has an annual growth of 1 to 3 percent. If you compare the monthly payments for a 10 year plan, the solar loans financing plan costs less than the solar lease or PPA financing plan.
Maintenance: Solar panels are robust in operation and requires almost no maintenance. Most solar panels offer a minimum 25 years warranty.
If you lease solar panel, the maintenance cost is covered by the owner and should provide a service program to cover the costs of any maintenance issues that arise during the tenure of lease agreement. When you choose solar loan financing option you become the owner of the solar panel system and all the maintenance and repair cost should be covered by you.
Application process: Solar lease agreements can be signed off in one single meeting since majority of terms and conditions are pre-determined. With solar loan financing option, there are many step by step procedures set, which may take up weeks of time. Additionally, the time may vary depending on the type of loan you choose to carry Secured on unsecured.
Selling your solar property: Solar lease financing option lets the new owner of the house carry forward the lease agreement or you can purchase the solar panel system and add it to the overall cost of the house. With solar loans your options vary depending on the type of loan – secured or unsecured. Irrespective of type of loan, houses with solar panel installation sell at a premium rate.
We hope that this blog post has resolved your doubts about solar financing. Solar is the future of human society and the more information we gather, the more we are becoming confident about its reliability.
Owning a solar panel system may seem like a huge cost in the beginning, but with these solar financing options you can easily install a solar panel at your home. The Government is also pushing various schemes in order to promote the benefits of adopting solar energy. We guess it’s time for you to think about this energy of the future.