Solar Financing: The Most Bang For Your Buck In 2020
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If you’re thinking about solar panels for your home, you’ve probably also considered solar financing. Well, as it turns out, in 2020, there are now more options for buying solar than ever. As the cost of electricity continues to rise throughout many utility companies and the cost of solar panels continues to decrease, affordability is at an all-time high. people are considering solar, and more banks are lending for it. If you really think about it, it only makes sense that lending institutions offer solar loans because people have to pay for electricity. Generally speaking, solar panels provide a much lower cost of electricity than a lot of utility companies.
In this post, we will discuss solar financing options in 2020 and share the pros and cons of each so you can make an intelligent buying decision.
Common Solar Financing Options in 2020:
Cash – Buying cash is obviously not a finance option, although sometimes it can be if you play your cards right. We have the cash option at the top because it is typically what any loan would be compared against.
Lease/PPA – The lease or power purchase agreement (PPA) is a form of third-party financing, meaning someone else pays for the solar panels installed on your roof, and you pay for the electricity over a 20 to 25-year term.
Solar Financing – There are multiple solar loans today that vary anywhere from 5 to 25 years, with just as wide a range for interest rates.
Solar Financing: Should You Pay Cash
The quickest way to a pay-off period, or how long it takes to recoup your investment, is by paying cash for the solar panels. It is also the cleanest way to buy solar panels because if you go to refinance or sell your home with solar panels installed, it makes the transaction a lot easier than typical solar loans or lease options. However, when you pay cash for a solar panel system, you also assume a few more responsibilities with ownership, though this depends on who you choose as an installer. These responsibilities include replacing a solar panel, which is not very likely to replace an inverter, which is only a matter of time.
One significant benefit of buying solar panels with cash is that you own the system. What that means for you is that if you want to upgrade the system, swap out parts, or what have you, you’re free to do as you please because it’s yours. The most significant benefit, however, is that all financial incentives that come with solar also belong to you. This is more the case for any solar buying option, whether financed or paid for in cash.
Buying Solar Panels Cash – Recap:
- You own the system & all financial incentives.
- Selling or refinancing the home is most accessible with a cash purchase of solar.
- Your level of responsibility is slightly higher.
- You can modify the solar panel system.
Solar Financing: What Is The Lease or PPA Option?
If you’ve looked into solar panels, you’ve undoubtedly come across the lease or PPA option. These options are commonly pushed by companies like Sunrun, Vivint, Tesla, or other third-party solar ownership companies. While they don’t require any out-of-pocket costs, at DroneQuote, we typically advise against these kinds of solar financing options, but before we get into that, let me share a few details about Solar financing through a lease or a PPA.
Differences between Lease and PPA option
These solar financing options work are excellent, but you don’t own the solar panels; you own the electricity that comes from them. Typically, the monthly payment on a solar lease is less than the average monthly payment to the utility. You can anticipate saving anywhere from 10-30% of your current utility bill if you opt for a solar lease or PPA. Unfortunately, many of these leases have an “escalator” built into them. This means that the customer’s monthly payment increases by about two or 3% per year for the term.
One of the biggest reasons somebody should consider a lease or PPA for their solar panels is if they do not qualify for a tax credit because these incentives go to the company that owns and pays to install the solar panels. Plus, a nice thing about a solar lease or PPA is that you can leave all maintenance of the entire solar panel system to the leasing company. While that sounds like a lot of responsibility, solar panel systems are deficient maintenance, so keep that in mind. Frankly, beyond that, there’s very little reason why somebody should consider a lease option, given that there are countless alternatives to a lease or a PPA, which are far superior.
Leasing/PPA For Solar Panels – Recap:
- You save without buying anything.
- You do not get the financial incentives.
- Longer terms with limited buyout options.
- Selling or refinancing the home with a lease may complicate things
- Your level of responsibility is slightly lower.
- You cannot modify the solar panel system.
Solar Financing: What Are The Solar Loan Options?
Actual solar loans only became popular in the last five years; before then, there were fewer options with far less attractive rates and terms than there are today. As solar panels have become more popular, so have the banks that offer solar financing.
The Rise of Solar Financing
As with any lending process, one of the first things solar loan companies look at is the consumer’s credit. Typically, they’ll want to see a clean credit history and FICO scores no lower than 650; although this is not a rule, and sometimes there are exceptions, you’ll see better interest rates with a higher credit score. Also, when you use solar financing, it will typically show up in your credit report, thereby impacting your debt-to-income ratio (DTI).
In terms of putting money down, just about all the solar financing options are 0 dollars down. What this means for you is that you can go from paying the utility one month to paying a considerably lower solar loan payment the next month. From this perspective, a solar loan makes a lot of sense because you start saving on your electricity from the first monthly payment without having to come up with any capital. If you prefer to put a down payment into the solar loan, you are always welcome to do so.
Factors in Solar Loan Approval
One of the beauties of solar financing is multiple-term options. If you have a high utility bill and want to be aggressive with your loan, you can opt for a shorter term, which will also have a lower interest rate. In most cases, a homeowner with an 8-12-year term will still see considerable savings compared to their monthly utility bill. If you have a low utility bill, you can opt for a longer-term, like 15 to 20 years, to maximize savings compared to your current utility bill.
Now let’s say you opted for a solar finance option of 12 years, and in year five, you decide to sell your house or pay off the remaining balance. The benefit of solar financing is that most solar loans do not have a pre-payment penalty. This means that a buyout is relatively cut and dry, where you simply pay off the remaining principal and is in stark contrast to the complexity of buying out a solar lease or PPA.
Other thoughts about loan approvals
When it comes to guarantees or maintenance of your solar panels under a financed purchase option, there is a little more responsibility on your shoulders. But don’t let that frighten you because, as we mentioned earlier, solar panels rarely ever require maintenance.
Sure, you might have to replace an inverter in the future,. Still, realistically, even if you were to pay out of pocket for the service call, that would only be a few hundred dollars maximum, and with DroneQuote, you can always be sure that you’ll get an inverter with no less than 25 25-year product warranty.
In other words, unless you DIY or choose a fly-by-night solar installer, chances are you’ll be okay even if you do have to pay for a service call. Even with a service call, buying cash or using solar financing beats a lease or PPA any day of the week that ends with Y.
Finally, when it comes to the buy option for solar panels, remember that any state and federal incentives included for buying solar panels are yours to keep with most if not all, purchase options.
Buying With Solar Financing- Recap:
- You save without spending $ out of pocket.
- You own the system & all financial incentives.
- Selling or refinancing the home is more accessible than with a lease or PPA.
- Your level of responsibility is slightly higher.
- You can modify the solar panel system.
DroneQuote: The Smart Way To Get Solar Or Roofing
Our job at DroneQuote is to help you understand the different options available to you when it comes to solar and roofing. We’ve put together this handy consumer guide that will give you a lot of information and questions to ask when buying solar panels. We are also here to provide you with multiple quotes from different installers in an easy-to-use and hassle-free manner through the DroneQuote portal. Request your free Quotes for solar or roofing through DroneQuote and see why we are the intelligent way to get solar or roofing.