Financing Your Solar Energy System? Here Are Your Options
If you had a spare $25,000, what would you do with it? Buy a new car? Pay off your student loans? Go on an elaborate vacation? For a growing number of homeowners, the answer to that question has become “buy a solar energy system.” Over the past decade, solar has blossomed from a narrow, niche market into a realm well within the reach of the average American. And although the price tag is still higher than installers would like, the returns for your average-sized installation are growing much more lucrative. The average cost-per-watt for solar energy is currently hovering somewhere between $3.00 to $4.00—about on par with what you pay for coal-generated electricity. However, by some accounts, that rate will fall to a mere $1.00 per watt by 2020 — so the timing is ripe for intensive savings.
There’s just that pesky little matter of the down payment. For most households, $25,000 isn’t an amount they can spend on a whim. Even when you add in a variety of different incentives, such as the Residential Renewable Energy tax credit, which returns buyers 30 percent of their equipment and installation fees—the cost presents a prohibitive barrier to solar panel installations for some. If you’re among the many homeowners who think solar should be more affordable, this article is for you. Due to flourishing interest in solar, a number of different lending options have come along to bring photovoltaic power to middle class households; here’s a rundown of what’s available.
Loans Offered Through a Solar Provider
This is possibly the simplest route you can use to finance your solar installation, at least in terms of administration. In this scenario, the solar company who sells the equipment also provides financing through a lender for qualified buyers. Just like at a car dealership, your salesperson walks you through the process of applying and completing contracts and paperwork. Smaller solar installers tend not to offer these kinds of lending services. However, there are several national solar companies, like Sunrun and SolarCity, that are known for their financing programs — but keep in mind that currently, these companies don’t operate in every state. Additionally, the APR for loans from a solar panel provider may be slightly higher than other lending options, as well.
If your solar provider doesn’t have their own loan program, you can always try a personal loan from your bank, as long as you have favorable credit. In this kind of setup, your credit score serves as your collateral, so you won’t have to put up the deed to your home. On the flip side, you’ll need an excellent credit history, and since a personal loan is unsecured, there’s a chance your financial institution won’t offer you the full amount you need for the installation. The good news is that typically, these loans have very competitive interest rates and longer repayment terms.
Home Equity Loans
Let’s say your bank will only offer you $6,000 in unsecured personal loans, and you really need $20,000 to make solar a reality. In this case, a home equity loan may be your best best. Here, the borrower puts a lien on your property, which acts as your collateral. Since the loan is secured, you can expect to be offered larger amounts and more favorable repayment terms than you might for a personal loan, particularly if your credit history isn’t spotless.
Solar leases, offered through large solar providers, offer an alternative path to solar. Instead of purchasing the equipment or taking out a loan, you allow a third party to purchase and install the equipment on your roof. In exchange, you agree to forfeit any subsidies, such as tax credits, that you might earn if you bought your panels yourself. Additionally, the solar provider charges you a monthly fee for using their equipment, which is usually much lower than your area’s average electricity costs. Many of these providers offer leases for as little as zero dollars down, and they may provide payment plans that allow you to purchase equipment after a certain amount of time has elapsed. However, if you plan to buy your equipment, it’s usually not the most cost-effective way to go, as far as return on your investment. Additionally, if you’re thinking about moving somewhere down the line, leases can create complications when you sell, since the solar company may potentially ask the next owner to take over your contract when you leave. While zero dollars down may seem tempting, before you sign on the dotted line for a lease, may sure you’re clear on what happens should you move, and what your purchasing options are.
Power Purchasing Agreements
A last way to get a solar energy system on your roof is to go with a power purchasing agreement, or PPA. PPAs are similar to leases in concept—a third party agrees to install and maintain the equipment on your roof in exchange subsidies and a monthly fee. The difference is mainly in the payment structure: PPAs charge you a per-kilowatt-hour rate for the energy you consume, rather than a fixed monthly fee. To put it another way, in a solar lease, you’re renting the equipment. In a PPA, you’re simply buying the energy you need. PPAs usually have very long terms — usually somewhere between 20 to 25 years — so homeowners who opt for this payment strategy often have some of the same problems getting the next owner to take over their commitment. They also offer eventual buy-outs, as well.
So what’s the right path to solar? Just like with any major purchase, it depends on your individual circumstances, but with a wider range of available lending options, your solar investment doesn’t have to be all or nothing.
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