What Is A Solar Loan And How Does It Work?

In the U.S., over 5% of electricity comes from solar power. Despite the dropping costs of solar panels, a home system can still be pricey, about $20,000. Solar loans help people afford these systems by spreading out the cost.

Solar loans let homeowners buy or rent solar panels for their roofs. They cover the panel costs and similar upgrades. But, they don’t help with the cost of maintenance or ongoing energy bills.

Choosing a solar loan means owning your energy source. It includes making a big upfront payment, but you get federal and local perks, and it boosts your home’s value. You also need to plan for monthly loan payments.

Key Takeaways

  • Solar loans finance the purchase or rental of a solar panel system for homeowners, covering the cost of the solar panels and related upgrades.
  • Homeowners who take out a solar loan become the owners of the renewable energy system, making them eligible for tax credits and other incentives.
  • Solar loans require a higher upfront investment compared to leasing or power purchase agreements, but can increase a home’s value.
  • Monthly loan payments for a solar energy system may be lower than the typical electricity bill, resulting in long-term savings.
  • Homeowners should carefully consider factors like interest rates, fees, and loan terms when choosing the best solar loan for their needs.

Introduction to Solar Loans

Solar energy is changing the game for American homeowners. It can cut monthly bills and raise home value. While the industry has made solar more affordable, installing it can still cost a lot.

Benefits of Solar Energy

Solar power has many perks for homeowners. It can lower electricity bills and boost property values. It’s getting better and more affordable, making it an appealing choice.

Upfront Costs of Solar Panel Installation

The average cost for a home solar system is about $20,000. This means that for many homeowners, financing is key. The big starting cost can keep some people away, but there are ways to make solar more within reach.

Solar Loans as a Financing Solution

Solar loans help homeowners buy and install solar panels. They allow homeowners to handle the upfront costs better and own a green energy source. With a solar loan, one doesn’t have to pay a big amount up front to get started.

What Is a Solar Loan?

solar loan

A solar loan helps homeowners buy or rent a solar panel system. This way, they can use sunlight to power their home. It covers the cost of the solar panels and extras like mounts and batteries.

Definition of a Solar Loan

A solar loan is special financing for solar energy systems. It lets homeowners own a solar panel installation. This is different from leasing or buying electricity from the system.

Expenses Covered by Solar Financing

These loans pay for the main parts of a solar system, like panels and inverters. They don’t include costs for keeping the system up or using the energy. Homeowners must pay these additional costs themselves.

Key Points About Getting a Loan to Own Solar Panels

solar panels

Taking a solar loan lets you own the system, like a mortgage for a house. You need to look after it and pay for repairs. But, you get to enjoy many bonuses and your house’s value goes up.

Ownership of the Solar Panels

With a solar loan, the panels are fully yours. You’re in charge of keeping them up and running. This also means you make all the calls on how to use your solar power.

Higher Initial Investment

Getting a solar system through a loan costs more upfront. Yet, this way, you can get tax breaks and other benefits. These can balance out the starting expense.

Eligibility for Local and Federal Incentives

When you finance your panels, you get access to tax credits and rebates. They cut down the total price and improve your profits. This edge is not available if you go for a lease or PPA.

Increased Home Value

Having solar boosts your home’s worth, just like a remodel does. It helps cover the initial payment. Plus, it makes your investment smarter.

Monthly Loan Payments

You pay back the solar loan monthly. Yet, if your bill is smaller than your usual electric bill, you save. This makes the solar option a good money move.

Also Read: Get Emergency Loans Fast When You Need Them

Types of Solar Energy Loans

solar energy loans

Homeowners can pick between secured and unsecured solar loans. It’s essential to know how these loans are different. This helps in choosing the top financing for your solar plans.

Secured Solar Loans

These loans need collateral, like the solar system or a car. Collateral can lower the interest rate, saving money. But, if you fail to pay the loan, you could lose your collateral.

Unsecured Solar Loans

On the flip side, unsecured loans don’t require any collateral. This means you won’t lose an asset. But, you might face a higher interest rate, and the lender could be pickier about who they approve.

Secured Solar Loans Unsecured Solar Loans
Require collateral (e.g., solar system or other asset) Do not require collateral
Lower interest rates due to collateral May have higher interest rates
Risk of losing collateral if loan is not repaid No risk of losing an asset
Lenders may be more lenient on credit requirements Lenders may be more selective on credit requirements

Pros and Cons of Solar Loans

solar loans

Jumping into solar energy is both smart and green for homeowners. Solar loans make the change easier to handle. Let’s look at the good and not-so-good about these loans.


  • Borrowing means lower out-of-pocket expenses for the solar energy system upfront.
  • There are tax perks, like the federal solar tax credit, for homeowners.
  • Solar systems can make energy and some extra income for the homeowner.
  • They can increase your home’s worth, which is a nice bonus.
  • By lessening pollution, solar panels help the planet and cut the need for fossil fuels.


Cons Explanation
Higher Upfront Costs Buying a solar system with a loan costs more upfront compared to other methods like leasing.
Loan Repayment Obligation You have to pay back the loan each month. This could be more than you used to pay for electricity.
Potential for Collateral Risk Loans using your solar system as a promise to pay can be risky. If you can’t pay, you might lose the system.
Ineligibility for Incentives With loans, you might not get the same tax benefits that owning the system outright gives you. Leases and PPAs also miss out on such perks.

It’s key for homeowners to look at the good and bad of solar loans. This helps them decide if a loan is the right way to start using renewable energy at home.

How to Get a solar loan

Getting a solar loan is key to using clean energy in your home. It’s important to have a good credit score. Also, comparing offers from different lenders is critical.

Consider Your Credit Score

Your credit score is vital in getting a solar loan. Most lenders look for a minimum score of 600. If you boost your score before you apply, you can get better loan terms. This will make your solar project more affordable.

Compare Offers from Multiple Lenders

You should look at different lenders to find the right solar loan. Compare things like interest rates, fees, and any penalties. Doing your homework helps you pick the best loan for your solar needs.

Solar Loans vs. Solar Leases and PPAs

Homeowners looking into solar power have some financing options. These include solar loans, leases, and power purchase agreements (PPAs). Knowing how these differ is vital to choose what’s best for your needs.

Solar Leases

In a solar lease, the owner doesn’t buy the system. They rent the solar panels from a company. This means they don’t handle the upkeep. But, they lose out on tax breaks and the chance to raise their home’s value with the panels.

Power Purchase Agreements (PPAs)

PPAs work a lot like leases. Homeowners pay for the power the panels make, but the solar company owns the system. Without ownership, taking advantage of tax benefits and solar rewards isn’t possible.

Feature Solar Loan Solar Lease Power Purchase Agreement (PPA)
Ownership Homeowner owns the solar system Solar company owns the solar system Solar company owns the solar system
Maintenance Homeowner responsible for maintenance Solar company responsible for maintenance Solar company responsible for maintenance
Incentives Homeowner eligible for tax credits and other incentives Homeowner not eligible for tax credits and other incentives Homeowner not eligible for tax credits and other incentives
Home Value Owning the system can increase home value Leasing the system does not increase home value Leasing the system does not increase home value
Monthly Payments Loan payments Lease payments Payment for electricity generated

Choosing the Right Loan Term

When you pick a solar loan, how long you’ll need to pay it off is very important. You can choose a loan that takes many years or a few years to pay back. Each has its own pros.

Longer Loan Term

Choosing a longer term, like 20 or 25 years, makes your monthly payments smaller. But you’ll end up paying more interest overall. Some homeowners like this if they want to keep monthly costs down. And if they plan to pay it off early without extra fees.

Shorter Loan Term

Shorter loan terms, about 10-15 years, mean you pay more every month. Yet, you pay less interest in total and own the solar system sooner. This speeds up your savings and makes the solar system a better investment.

Deciding on the loan term depends on your money situation and what you want to achieve. Think about how much you want to spend every month. Also consider how much interest you’re willing to pay in total. This helps in picking the right solar loan to meet your needs.

Factors to Consider When Selecting a Solar Loan

Choosing a solar loan requires thorough assessment. It’s vital to pick one that fits your financial needs. Consider interest rates, fees, and loan term.

Interest Rates

Solar loan rates usually span from 2.99% to 5.99% annual percentage rate (APR). For unsecured loans, expect dealer fees, making rates seem higher. On the other hand, secured loans from credit unions, while potentially with higher APRs, come without these fees. When looking at loans, focus on the total finance cost. This includes additional fees, not just the interest rate.

Fees and Dealer Charges

Be wary of dealer fees when exploring solar loans. These additional costs, which the lender passes to the homeowner, can be significant. They generally fall between 20-40% of the system’s cash price. Always include these fees in your loan comparisons to get a clear picture of each offer’s total expense.

Loan Term and Monthly Payments

The loan term directly affects your monthly payment and overall interest paid. Longer terms like 20 or 25 years lighten your monthly expense but rack up more interest over time. On the flip side, choosing a shorter term, around 10-15 years, will increase your monthly costs while reducing the interest paid. Which term works best depends on your financial plan and goals.


Solar loans are a smart choice for homeowners who can’t pay cash upfront for solar panels. They enable homeowners to own a solar system. This can lead to benefits like tax breaks and higher home worth. Often, the savings on electricity bills are more than the loan costs.

It’s crucial to look at important things such as interest, fees, loan rules, and monthly payments. This helps ensure the solar loan matches your money situation. Talking to a financial advisor can make choosing the right loan easier.

Solar loans let homeowners handle the initial costs of moving to solar power. They get to enjoy the future savings of using solar. By making careful choices, homeowners can make their energy use more eco-friendly and cost-efficient.


What is a solar loan?

A: A solar loan is a type of loan specifically designed to help individuals finance the installation of solar panels or other solar energy systems for their homes. It is a popular financing option for those looking to go solar without paying for the system upfront.

Q: How does a solar loan work?

A: A solar loan works similarly to a personal loan or a home improvement loan. Once approved for the loan amount, you can use the funds to finance the purchase and installation of your residential solar system. You then repay the loan amount plus interest over a set term.

Q: What are the advantages of choosing a solar loan?

A: Choosing a solar loan offers various benefits, including access to low interest rates, the ability to take advantage of solar incentives and tax credits, and the opportunity to own your solar panel system outright.

Q: How do I qualify for a solar loan?

A: To qualify for a solar loan, you typically need to have a good credit score and meet the lender’s specific requirements. Some lenders may also consider factors such as your income, debt-to-income ratio, and the equity in your home.

Q: What types of solar loans are available?

A: There are different types of solar loans available, including solar-specific loans, personal loans, home equity loans, and home improvement loans. Each type of loan comes with its own terms and conditions.

Q: What are the steps involved in applying for a solar loan?

A: The steps involved in applying for a solar loan may vary depending on the loan provider. Generally, you will need to submit an application, provide financial documents, get approved for a loan amount, and agree to the terms before receiving the funds.

Q: Do solar loans offer competitive interest rates?

A: Yes, many solar loan providers offer competitive interest rates to make financing solar energy systems more affordable for homeowners. It’s important to compare rates from different lenders to find the best option for your financial situation.

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