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How Does Solar Panel Financing Work?

How Does Solar Panel Financing Work?
Kelly Boyer Sagert
Kelly Boyer SagertUpdated October 25, 2022
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
Homeowners can get significant benefits by switching to solar energy. You can save money  on utility bills, increase your home’s value, get tax rebates, and reduce carbon dioxide emissions when you install solar panels. However, the upfront cost of going solar may require financing if you don’t have the cash to pay for it. Fortunately, there are numerous financing options with different rates and terms. Here’s how solar panel financing works, the types of financing available, and how to make the right choice for your needs.

Average Cost of Solar Panels in 2022

The cost of solar panels in the US has dropped significantly over the past decade. The median cost of solar panels in 2022 is $24,742, and can range from $12,286 to $45,013, depending on the system size. By comparison, in 2011, a 6-kilowatt hour (KWh) system was more than $50,000.

Solar Panel Savings

Homeowners who use solar panels will see lower utility bills, which can add up to a considerable amount of savings over time. The U.S. Department of Energy (DOE) notes that individual savings will depend on multiple factors, including:
  • System size
  • Energy consumption
  • Direct hours of sunlight daily
  • Roof size and angle
  • Local electricity rates
In addition, research indicates that installing a solar system increases the resale value of a home—by about $15,000, according to one study. To get a better sense of what this might mean for you, one estimate cited by the DOE found that for every dollar saved in annual energy bills, a home’s value can rise by $20. That means  if a solar system saves you $200 annually, it would increase your home’s value by $4,000. Federal tax credits are available for solar system installations. Congress passed an extension of the federal solar tax credit this summer, and raised the tax credit to 30% for solar systems installed between 2022 and 2032. Additionally, some states offer solar incentives, tax credits, and rebates. Some local utility companies do as well. 

Solar Panel Financing Options

Options for solar financing include these six:
  • HELOC (home equity line of credit)
  • Solar Panel Leasing
  • Your Savings
  • Home Equity Loan
  • Credit Cards
  • Personal Loans
Here’s information on each one. 

HELOC

With a home equity line of credit (HELOC) you borrow against the equity in your home, taking money as needed, up to a certain limit, to pay for solar panel expenses.Pros:
  • Your home is the collateral for a HELOC, so interest rates will be lower than some other options.
  • You can use the funds for a wide variety of purposes, including solar panel finance.
  • You use only the amount you need, when you need it.
  • Making payments on time may raise your credit score.
  • Repayment options are often flexible.
  • You may be able to deduct the interest from your taxes in certain situations.
Cons:
  • Because your home is the collateral for a HELOC, if you don’t make your payments, the lender can foreclose on it.
  • You reduce your equity in your home.
  • Interest rates are variable. 
  • It can be easy to overspend with a HELOC because it is a revolving line of credit.

Solar Panel Leasing

It’s possible to lease (or rent) solar panels instead of buying them with a solar panel loan. There are benefits and drawbacks to leasing. Pros:
  • You don’t pay upfront installation costs.
  • You often aren't responsible for maintenance costs.
  • You benefit from energy savings without having to buy solar panels. 
Cons:
  • When you purchase solar panels, you typically get free electricity after paying them off. With leasing, you don’t.
  • You can’t benefit from any of the available tax credits or rebates.
  • When you sell your house, buyers may not want the obligation of a solar panel lease and consider it a disadvantage.
 

Your Savings

Paying for solar panels in cash is another option, if you have the money. Pros:
  • Paying with cash instead of taking out a solar panel loan is more straightforward.
  • You won’t need to qualify for a loan.
  • You don’t pay interest or fees.
Cons:
  • Paying for solar panels means you can’t use that money for other purposes.
  • You’ll lose interest the money may have been earning in a bank or investment account.
  • It will take eight years on average to recoup the money through energy savings.

Home Equity Loan

With a home equity loan, which is one of the types of loans for house improvements, you borrow against your home’s equity, using your house as collateral. You receive the funds in a lump sum. Pros:
  • Interest rates will likely be lower than many other types of financing.
  • You can typically get a fixed interest rate with a long payment term.
  • If you have enough equity in your home, you may be able to borrow a significant amount of money.
 Cons:
  • If you default on the loan, the lender may foreclose on your house.
  • You will have less equity in your home.
  • You might take out more money than needed and risk overspending.
 

Credit Cards

Credit cards are another method of solar panel financing.Pros:
  • They are easy and convenient to use. 
  • Making your payments on time can help strengthen your credit score
  • If you pay off the balance at the end of the billing cycle, you won’t owe any interest. 
  • Depending on the credit card, you can earn rewards. 
Cons:
  • Credit cards have higher interest rates than many other options and may also have fees. 
  • Late payments can damage your credit score.
  • Applying for too many credit cards can also hurt your credit. 
  • It’s easy to overspend.

Personal Loans

The definition of a personal loan is a type of loan that may be secured (with collateral) or unsecured (with no collateral). Borrowers receive a lump sum from a bank, credit union, or online lender. The loan is paid back with interest in monthly installments. There are advantages and disadvantages of personal loans. Pros:
  • A flexible form of funding that can be used in many ways, including as a solar loan.
  • Personal loans can provide fast access to cash, sometimes within hours of approval.
  • Can help you build and strengthen your credit score.
  • Interest rates can be comparatively low.
  • Borrowers with good credit scores can often borrow tens of thousands of dollars.
  • Personal loans are often unsecured with no collateral needed.
Cons:
  • Personal loan requirements explained can include a hard credit check, which can temporarily lower your credit score. 
  • Interest rates can be higher than some other types of funding, such as home equity loans and HELOCs.
  • Some lenders charge additional fees and prepayment penalties.
  • Monthly payments can be higher than some alternatives.
  • Personal loans increase the amount of debt you carry.
  • Some lenders require collateral.

  Exploring Personal Loan Options

If you’re interested in a personal loan for solar power financing, you’ll want to shop around for the best terms. Lantern by SoFi can help you easily compare rates for personal loans. All you have to do is fill out one simple form to see offers from multiple lenders in our marketplace. Then, you can choose the one that suits your needs.Get personalized personal loan rates quickly and conveniently with Lantern.
Photo credit: iStock/dusanpetkovic
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice. LCPL0522010

Frequently Asked Questions

Why do people finance solar panels?
What is the long-term benefit of financing a solar panel?
What are good options for financing a solar panel?

About the Author

Kelly Boyer Sagert

Kelly Boyer Sagert

Kelly Boyer Sagert is an Emmy Award-nominated writer with decades of professional writing experience. As she was getting her writing career off the ground, she spent several years working at a savings and loan institution, working in the following departments: savings, loans, IRAs, and auditing. She has published thousands of pieces online and in print.
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