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Installing solar panels on your home is a great way to lower your electric bill while helping the environment at the same time. Unfortunately, solar panels aren’t cheap. In January 2017, a 10 kilowatt system costs, on average, $32,600 in the United States before any incentives or tax credits. Most people don’t have $32,600 set aside that they can use to pay for solar panels, so they have to take out a loan if they decide to purchase a solar panel system.
- Should You Use a Personal Loan?
- Alternative Solar Panel Financing Options
Should You Use a Personal Loan to Pay for Solar Panels?
Using a personal loan is one of many options you may want to consider, but it usually isn’t your best bet. While using a personal loan to pay for a solar panel system does have benefits, the interest rates on these loans, often ranging from 10% to 32% depending on your credit score, usually don’t make them the best choice. Specialized solar panel loans, which are secured loans that can only be used for solar panel systems, generally come with lower interest rates. One benefit of an unsecured personal loan is the fact that the lender won’t be able to foreclose on your home or repossess your solar system if you can’t make payments like they could if you used a secured loan such as a home equity loan or a specialized solar panel loan to finance your solar panel system.
Another factor to consider is the term of the loan. Personal loans generally are issued for a shorter term, from one to seven years, whereas most specialized solar loans have terms that range from five to 20 years. While you could pay off your solar panel system faster with a personal loan, shorter loan terms almost always result in higher monthly payments. If the cost of your personal loan ends up being less than your projected electricity savings and you can’t line up any cheaper financing, you could still be saving money. However, if the loan would cost more than you’re projected to save, you should skip installing the system unless your main goal is to help the environment.
Where to Get a Personal Loan for Solar Panels
If you want to investigate using a personal loan, you’ll want to shop around to find the best loan for your situation. You should check with banks and credit unions in your community to see what options they offer. Make sure to mention that you’ll be using the loan for a solar panel system in case they have a special program that may fit your needs. For instance, US Bank offers a 1% rate discount for green home improvements and energy efficient purchases. After checking out your local options, investigate your online personal loan options as well. You can compare peer-to-peer lenders, such as LendingClub, with other online lenders like SoFi or Upstart. When investigating your online options, make sure to look for special solar panel system loan options, too.
Alternative Ways to Pay for Solar Panels
You don’t have to use a personal loan to pay for your solar panels. If you qualify, other loan options will probably be a better fit for your situation.
Specialty Solar Panel Financing
Specialty solar panel financing is often offered by solar panel manufacturers, installers, some banks, credit unions and online lenders such as LightStream. Specialty solar panel financing loans can either be secured by your home or the solar panel system itself depending on the loan. Loans secured by your home will generally have lower interest rates, approximately 3.5% to 6.5%, than loans secured by the solar panel system, which range from 3.5% to 13.24%, because the borrower can repossess a larger asset with more value—your home—to recover the full balance due rather than a solar system that has likely lost part of its value over time.
Property Assessed Clean Energy (PACE) Programs
A PACE program is where a local or state government or other authority pays for the upfront costs of energy improvements on residential or commercial properties. PACE programs have recently been changed to allow energy efficiency and renewable energy projects, such as solar panel systems. While the local or state government or other authority pays the upfront cost, the money is repaid through property assessments, often tacked on to property tax bills, which are secured by the property the solar panel system is installed on. The repayment period can vary, but the money is usually repaid over 10 to 20 years. Interest rates vary, but usually start at 3% and go up from there.
If you sell your home before the assessments are paid off in full, the assessment stays with the property where the improvement is located and does not have to be paid off before selling the home. This can be a good thing because the homeowner does not have to pay off a loan on a solar system they will no longer use, but it may cause buyers hesitation to take over a property with additional property assessments if they didn’t want a solar panel system in the first place.
Home Equity Loans or Home Equity Lines of Credit
Using a home equity loan or home equity line of credit (HELOC) is another option to pay for your solar panel system costs. You usually need a hefty amount of equity left over, often 20%, after accounting for any funds you borrow with a home equity loan or HELOC. Home equity loans and HELOCs are secured by the equity in your home, so if you default on the loan the lender could foreclose on your home. However, because the loan is secured, you can expect much lower interest rates than on unsecured loans.
While you can use your credit card to pay for your solar system, it wouldn’t be a smart move in most cases. Unless you’re using your credit card simply to earn points before paying off the purchase in full, APRs on credit cards are usually much higher, averaging 16%, than other solar loan options.
If you can pay the full cost over a short time period, such as 18 months, you may be able to use a credit card with an introductory 0% APR on purchases to pay for the solar system without paying any interest at all. However, if you can’t pay the balance off in full before the promotional period expires, you’ll either need to transfer the balance to another card with a 0% promotional rate on balance transfers or be prepared to pay interest on the remaining balance.
Tax Incentives, Grants and Other Benefit Programs
Depending on where you live and your situation, you may qualify for tax incentives at the federal, state or local level. In general, you must purchase, not lease, the system to qualify for most incentives and tax breaks. Some localities or utilities may offer their own incentives for adding solar power to your home, too. An easy way to find incentives is using your zipcode to search the Database of State Incentives for Renewables & Efficiency. While many incentives are listed within the database, you should still do research on your own to see if you qualify for any incentives that aren’t included.
Ways to Pay for Solar Panels Without Loans
If you don’t want to take out a loan to pay for solar panels, you can always pay for them in cash. You could set aside a predetermined amount monthly until you save enough to pay for the solar panels in full. Alternatively, you could save your bonus checks and tax refund checks until you have enough to pay for the system. No matter how you choose to save, paying for a solar panel system in cash saves you money you’d otherwise spend on interest payments.