Table of Contents:
Key takeaways
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Financing options make solar energy systems accessible and affordable for people who can’t or don’t want to pay cash.
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Homeowners have several options for solar panel financing.
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While interest on solar loans adds cost, a financed system can still save homeowners money in the long run.
Solar energy equipment is no small purchase. With an average price of $17,823 for a 5 kW system, paying cash for a new system isn’t an attractive option—or an option at all—for many homeowners. Solar panel financing provides a way to make the switch to renewable energy through affordable monthly payments.
We created this guide to solar panel financing to help you understand how it works and what options are available to you. You’ll also find information about how financing affects solar panel cost, so you can make an informed decision about your investment.
How solar panel financing works
Financing for solar panels works in mostly the same way as financing for other large purchases. Borrowers apply for a loan to pay for the cost of a solar system from financial institutions or private lenders and pay that loan back over time.
Where to get solar panel financing
If you’re looking to get financing for your solar panel system, there are several categories of lenders that may be available to you, including:
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Commercial banks: Traditional banks offer several types of loans that can be used to pay for solar panels, like home equity loans and personal loans. Some may even offer loans specifically for solar energy investments.
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Credit unions: You can find most of the same loan products at a credit union as you would at a commercial bank, but you may have fewer options.
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Mortgage lenders: Lenders that specialize in mortgage loans tend to offer home equity loans and cash-out refinance loans you can use for solar.
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Solar energy-specific lenders: With the increasing popularity of solar energy, there are now some lenders that specialize in loans for solar panels.
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Solar contractor financing: Some solar energy contractors offer their own financing programs, usually through a lending partner.
What to expect from a solar loan program
Like other loans, approval for solar panel financing is dependent on lenders’ requirements and how your financial profile measures up to those requirements. While the specific requirements vary from one lender to the next, lenders will typically consider the following criteria:
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Credit score: Your credit score is perhaps the single biggest factor in your loan eligibility. Borrowers with “good” or “excellent” credit scores will have the least trouble being approved and get access to the lowest interest rates.
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Debt-to-income (DTI) ratio: Lenders need to know that you have the money to reliably make your payments. They determine this by comparing your monthly income to your monthly debt obligations, like mortgage, credit card, and auto loan payments. To be approved, you will need to show that you have enough room in your budget after paying other debts.
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Credit utilization: How much of your available credit you’re using is also a factor in your loan eligibility. Many lenders are reluctant to loan money to borrowers who have “maxed out” or come close to maxing out their available credit.
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Home equity: If you’re looking to get a home equity loan or apply for a home equity line of credit (HELOC) to finance your solar panels, the amount of equity—or, the difference between what you’ve paid on your mortgage compared to your home’s market value—is an important factor in your loan eligibility.
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Credit history: This includes a record of missed or late payments, closed accounts, and lines of credit you’ve applied for recently.
Types of solar loans: secured, unsecured, and home equity
Loans for solar panel financing fall into three broad categories: secured loans, unsecured loans, and home equity loans. In the following sections, we go over how these loans work and how they differ from one another.
Secured loans for solar panel financing
Secured loans are loans that require collateral—assets of value you own—to provide a source of recourse to the lender if you default on your payments. This could be something like your home, an automobile, or even cash stored in an account, among other types of personal property.
Pros and cons of secured solar panel loans
Here’s a look at some of the main pros and cons of using a secured loan to finance your solar panel installation:
| Secured Solar Loan Pros | Secured Solar Loan Cons |
|---|---|
| ✅ Often have lower interest rates than other types of solar loans | 🚫 Property used as collateral may be repossessed if you miss payments |
| ✅ May have lower credit eligibility requirements | 🚫 Lenders may limit what you can spend funds on |
| ✅ Wide range of assets can be used as collateral | 🚫 Application process may be more complex and involved |
Unsecured loans for solar panel financing
Unsecured loans are loans that do not require a form of collateral for approval. Instead, lenders base their decision on your credit rating and overall financial profile. The most popular types of unsecured loans are personal loans and credit cards.
Pros and cons of unsecured solar panel loans
In the table below, we’ve listed some of the key upsides and downsides of using an unsecured loan to finance your solar energy system.
| Unsecured Solar Loan Pros | Unsecured Solar Loan Cons |
|---|---|
| ✅ No risk of repossession of property used as collateral | 🚫 Tend to have stricter eligibility requirements |
| ✅ Typically approved faster and funds dispersed more quickly | 🚫 Higher interest rates than other types of financing |
| ✅ Funds can often be used for any purpose without lender restrictions | 🚫 Typically come with higher interest rates |
Home equity loans for solar panel financing
Another popular way to finance your solar energy system is by using a home equity loan. With this option, you borrow money against the equity you’ve built up in your home. There are two main types of home equity loans to consider:
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Home Equity Loan: This is a second mortgage that lets you take out a lump sum of cash when you refinance. You can typically borrow up to the difference between what you owe on your home and the new amount you finance. Home equity loans often come with either a fixed or variable interest rate.
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Home Equity Line of Credit (HELOC): A HELOC works more like a credit card, giving you a revolving line of credit based on your home’s equity. During the draw period, you can use funds as you need them, up to your credit limit. After this period ends, you enter the repayment phase, where you pay back the balance you’ve borrowed. HELOCs usually have variable interest rates, so your payments may change depending on market conditions.
Both options allow you to tap into your home’s value to help pay for your solar installation, but it’s important to understand how each works before deciding which is right for you.
Pros and cons of home equity solar loans
You can find some of the key advantages and disadvantages of home equity loans for solar panels in the table below.
| Home Equity Solar Loan Pros | Home Equity Solar Loan Cons |
|---|---|
| ✅ Typically come with low interest rates | 🚫 Risks repossession of your home |
| ✅ Interest on home equity loans is tax deductible | 🚫 Loan amount limited by the equity in your home |
| ✅ Easier approval than other types of loans | 🚫 May come with origination fees and other expenses |
How solar loan interest rates impact ROI
When you take out a loan to finance your solar panels, you’re increasing the total cost of your solar system. Interest payments can add hundreds or even thousands of dollars over the life of the loan. That’s why your interest rate—also called the annual percentage rate (APR)—has a big impact on the return on investment (ROI) for your solar panels. Paying interest means it’ll take longer to break even on your system, which also reduces your overall energy savings.
Solar panel financing APR cost comparison
Interest for solar panel financing loans may cost more than you think, so it is critical to include them in your budget plans. The table below shows the total cost of a loan and the amount of interest you’d pay for $18,000 in solar panel financing over a 15-year period.
| Amount Financed | Solar Loan APR | Monthly Payment | Total Cost of Loan | Total Cost of Interest |
|---|---|---|---|---|
| $18,000 | 5% | $142 | $25,622 | $7,622 |
| $18,000 | 6% | $152 | $27,341 | $9,341 |
| $18,000 | 7% | $162 | $29,122 | $11,122 |
| $18,000 | 8% | $172 | $30,963 | $12,963 |
| $18,000 | 9% | $183 | $32,862 | $14,862 |
Is financing solar panels worth it?
Even after you factor in extra costs like interest and loan fees, financing solar panels is still a smart move for many homeowners. While these financing costs can eat into your return on investment and extend your payback period, you'll likely save money over the lifetime of your solar energy system—especially compared to relying solely on your local utility and traditional grid electricity. Solar panel installation also boosts your home's value and reduces your carbon footprint, making it a worthwhile investment in the long run.
However, the information in this article should emphasize the importance of shopping around for the best interest rates available to you for a solar panel loan. As you can see in the table above, a loan with a 6% APR ends up costing more than $1,700 more than one with a 5% APR over the life of the loan. The difference between a 5% APR loan and a 9% APR loan is more than $7,200.
Solar panels are usually a smart investment, even if you need to finance them. However, the financing method you choose—whether it’s a solar loan, a home equity loan, or a HELOC—can have a big impact on your long-term savings. Make sure you shop around with banks, credit unions, or specialty solar lenders to find the lowest interest rate available. Taking the time to compare offers can save you thousands of dollars over the life of your solar energy system.
How solar loans compare to other financing strategies
You have several ways to pay for your solar panels. In this section, our experts have ranked these payment options from best to worst, so you can easily compare and decide what works for you.
1. Buying solar panels with cash
If you have the spare funds to purchase your solar energy equipment outright, this is your best option for a few reasons. The first is just math—solar equipment is cheaper when you don’t have to pay interest on financing. But it’s also a simpler and faster process since you don’t have to apply for a loan and do all the paperwork that goes with it.
2. Financing solar panels
If you can’t pay for a solar panel system upfront, your best option is to finance your purchase. While financing does add to the overall cost, your solar panels will likely still pay for themselves over their lifespan. Plus, you can still claim tax credits and other incentives even if you use a loan to cover the cost of your solar equipment.
3. Leasing solar panels
Another option for paying for solar panels is to lease them from a solar provider. With a solar lease, you’ll typically pay a flat monthly fee and often face lower upfront costs than if you financed a purchase. Some providers even include maintenance as part of the lease agreement.
However, leasing usually isn’t the best choice compared to buying. When you lease your solar panels, you can’t take advantage of federal tax credits or other solar incentives, and since you don’t actually own the panels, they won’t increase your home’s value. Over time, leasing often ends up costing you more than purchasing your solar energy system outright.
4. Entering into a solar panel purchase agreement
Purchase agreements are usually the last option to consider. With these arrangements, a solar provider installs and owns the solar equipment on your home, then sells you the electricity it generates. While you typically don't have to pay anything upfront, purchase agreements often don't save you much money compared to simply buying electricity from the grid. Plus, you won't qualify for tax breaks or other incentives because you don’t actually own the solar system.
Measuring the financial return from solar loan repayment
If you’re thinking about getting a loan to pay for your solar energy system, make sure you factor interest costs into your budget. Financing your solar panels does add to your overall expenses, but the savings on your energy bills can help you pay back that loan. In most cases, you’ll still come out ahead financially over the life of your solar system, even when you account for the extra cost of solar panel financing.
Lenders should provide the information you need to understand the full cost of your loan, with an amortization schedule and other documents. To measure the financial return of your financed solar system, you’ll need to compare your combined energy savings over the 25-year working life of the system to the total cost, including interest. Here’s how:
Determine the average monthly energy bill for your home.
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Multiply that average by 300 (12 months per year for 25 years).
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Find the total cost of your solar panel system, including interest.
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Subtract the cost of the system from the total energy cost over 25 years from step two.
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This figure is your estimated financial return, including solar loan repayment.
Bottom line on solar panel financing
Financing your solar energy system is a way to make the switch to renewable energy without having the pay for it all at once. Unlike leasing, getting a loan for your solar purchase means you still get to own the equipment once it’s paid off.
You’ve got several options for loans you can use to pay for solar panels. Taking the time to research your available options and finding the best interest rate available to you can save you thousands of dollars in the long run. If you can only qualify for high-interest loans, though, this would be a reason not to get solar panels.
FAQ about solar panel financing
Below are a few frequently asked questions about solar panel financing
Is it a good idea to finance solar panels?
It’s a good idea to finance solar panels if you can’t pay for them in cash. Financing adds cost to your purchase, but your solar energy system is still likely to pay for itself and save you money over buying energy from the grid in the long run.
What is the average term of a solar panel loan?
The average term of a solar panel loan depends on the type of loan you get. Personal loans, for example, tend to have term lengths of two to seven years. Some home equity loans have the same terms as mortgages, up to 30 years.
Is it hard to get a solar loan?
Solar loans can sometimes be easier to qualify for than other types of loans, depending on both the kind of solar loan you’re interested in and your financial situation. Secured solar loans and home equity loans usually have lower credit requirements, since they’re backed by collateral like your home. On the other hand, unsecured loans—like personal loans—generally follow the same eligibility rules and restrictions for solar projects as they do for any other purpose.
Is it better to rent solar or buy?
It's usually better to buy solar panels than to rent them. When you buy solar equipment, you typically pay less over time than you would with a lease, and you can add value to your home since the system can be included in the sale.