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There are a lot of people interested in solar power, and it also makes good financial sense. If you live in the right part of the country and have a large enough home solar panel, you can completely eliminate your electric bill. Think about it: $ 0 per month for your electricity.

Solar panels are not free, however. You can expect to spend around $ 20,000 on a home solar system, depending on how many panels you need. Many homeowners are still able to break even in about seven to eight years despite the high cost. But unless you have $ 20,000 in reserve, you may need to consider a solar loan to get started.

Here’s what you need to know about solar finance.

Types of solar loans

Some lenders offer loans dedicated to solar expenses. But you can also pay off your solar system with many other types of financing, some of which may make more sense to you than specific solar energy loans. Here’s a quick look at the different ways you can fund your solar system.

Guaranteed solar loans

Many solar system retailers offer point-of-sale (POS) financing in the form of secured loans – meaning you are required to pledge collateral – which work the same way as auto loans. If you are in default on the loan, your lender can come and repossess your solar panels. On the positive side, secured loans usually come with lower rates than unsecured loans, but unsecured loans do not require collateral.

R-PACE solar loans

Most loans require you to repay with personal funds. However, Clean Energy Program for Residential Properties (R-PACE) loans allow you to tie your loan to your home instead and pay it off over 10 to 20 years with your property tax payments. R-PACE loans are currently available in parts of California, Florida, and Missouri.

If you sell your home, the new owner can take over the loan repayments if they want, and you will no longer be responsible since you no longer live there. Otherwise, the buyer may ask you to repay the loan before buying it, which can make it harder to sell your home. Besides this pitfall, it is an innovative program that deserves to be studied because it also offers low interest rates.

Green mortgages

If you are buying a new home, you may be able to use a green mortgage to pay for a solar system. These allow you to borrow a secondary amount – based on the value of your home after the solar upgrades – to pay for the energy efficiency upgrades with the purchase of your home. Some lenders even offer green refinances, which can be particularly beneficial if they allow you to refinance at a lower rate and get financing for solar panels as well.

Solar loans from utilities or local governments

There is a patchwork network of state and local governments across the country that offer solar loans to their residents. You can check what loan programs (and other incentives, like cash back rewards) are available in your area by visiting the Database of State Incentives for Renewable Energy and Efficiency website. To find out what’s available to you, click on your state (rather than entering your zip code), then select “solar” from the horizontal menu.

Home loan or line of credit

If you have the equity in your home – the current market value of your home minus your mortgage balance – you can also take out a Home Equity Loan or Home Equity Line of Credit (HELOC). These can come with lower fares, which is a big plus. Remember that since your home secures the loan or line of credit, you can lose your home if you fail to repay the loan.

Unsecured personal loan

Unsecured personal loans are not necessarily the best option for solar systems as they usually come with higher rates than secured loans. However, if you default on the loan, you won’t lose any of your assets (not at the start, at least). Personal loans generally have repayment terms of between two and seven years.

Benefits of solar loans

• Financing can be cheap: Some types of financing for solar loans can be very cheap, such as home equity loans or R-PACE loans.
• Better for the environment: Solar loans allow you to reduce your carbon footprint today.
• Increase the value of your home: A working solar system can instantly increase the value of your home. It can also make the sale easier if you plan to move.
• Potential tax incentives: You may be able to recoup up to 22% of the cost of your solar system through a federal tax credit in 2021, which will be phased out in 2022 unless it is renewed. Many states also offer similar state-specific programs.
• Saves you money on electricity bills: Depending on the number of solar panels you have and where you live, it is possible to completely eliminate your electricity bill from your budget. A lot of people won’t be able to go that far, but it can drastically lower your bill. And, if you generate excess electricity, you may be able to sell it back to your utility company for a profit.

Disadvantages of solar loans

• Decrease cost savings: Paying interest on a loan reduces the total savings you will make from your solar energy system because it is extra money you owe on top of your loan amount.
• Extends the payback period: It takes seven to eight years to break even after purchasing a solar system. Paying interest on a loan can extend this horizon.

Should you get a solar loan?

If you can’t afford to pay for a solar system in cash (and many of us can’t), there are definitely plenty of benefits to getting a solar loan so you can afford it now. Having said that, it’s not good for everyone.

Taking out a loan reduces the financial benefits of solar systems. Also, by the time you pay off your loan, it is quite possible that better, more cost-effective solar panels will be available.

If you are able to delay and set up an automatic savings plan for yourself, you may be able to get better and more affordable solar panels in a few years as the cost of new technology drops rapidly. .

Other ways to take advantage of solar energy

If you’re not able to get a solar loan right now but still want to take advantage of solar power, you’re in luck. There are many other options available. One downside, however, is that since you don’t own the solar panel directly, you won’t be able to claim tax breaks. But you can still stand out financially and ethically.

Solar leases

Some companies rent solar equipment from you. They will install it on your home as if you bought it yourself, but the company retains ownership and maintenance of it. You will basically pay a fee to rent the equipment.

It’s a good idea to do the math to verify that even with this additional price, your overall electricity costs will in fact be cheaper than without the rented solar system.

Power purchase agreements

A power purchase agreement is similar to a solar lease in that a third party company comes in and installs a solar system on your property. However, instead of paying a rental fee for the equipment, you pay for the electricity produced by the solar panel. It’s a similar cost, just paid for in a different way, like having a mini power plant in your home.

Again, it’s a good idea to verify that the electricity costs in this deal are cheaper than your normally purchased electricity.

Community solar programs

Many communities are starting to offer community solar programs where you can pay to support or rent a solar panel in a large offsite solar panel. In return, you will get a credit on your bill for solar energy produced by your rented panel. These are extremely popular with people who cannot install solar systems where they live, such as homeowners with irregularly shaped roofs or tenants.