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Posted: Sarah Hancock|April 26th, 2018

Solar

Your Guide to Solar Loans

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Written by Sarah Hancock
Sarah Hancock is passionate about green living and sustainability. She frequently writes about renewable energy and manages the Solar blog at BestCompany.com.

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Financing solar panels with a loan has become an increasingly popular payment option in recent years. If you don't have the cash on hand for an outright purchase but still want to maximize the financial benefits of a solar system, a loan might be the perfect fit for you. This guide will help you learn everything you need to know about solar loans before you decide whether or not to sign on the dotted line.

What are the benefits of a solar loan?

Solar loans allow you to finance the entire cost of your system, as well as receive all rebates, tax credits, and other incentives available in your area. These benefits allow you to maximize the return on your solar investment. Because your loan payment will most likely be less than your current electricity bill, you will begin saving money right away. And, as electricity prices continue to increase, so will your savings. Once your solar panels are paid off, you will own them and all of the energy they produce, essentially giving you the ability to power your home for free.

Which types of solar loans are available to me?

There are two different types of solar loans that borrowers can choose from: secured and unsecured. There are $0 down options available with both types, so you won't be required to put up any cash in order to lock down a loan.

The most common form of secured loans are home equity loans or home equity lines of credit, which are sometimes referred to as second mortgages. With these kinds of loans, you borrow against the equity you've built in your home and your house serves as collateral. Secured loans often come with a loan term of 7 to 20 years, an interest rates of 3.5 to 5.5 percent, and tax-deductible interest. However, if you were to default on the loan for some reason, the bank would have the option to foreclose on your house.

A second type of secured loan that can be used for solar panels is an FHA Title 1 loan. This type of loan is guaranteed by the government, but your home must still be used as collateral. Loan terms range from 7 to 20 years and interest rates typically fall between 5 and 7.5 percent. If you happen to default on the loan, the lender will have a lien against your home so that the loan will be paid when or if you sell your house.

Unsecured loans, on the other hand, do not require any collateral, which makes them riskier for the lender. This risk is reflected in a slightly higher interest rate, and the interest is not tax deductible. If you were to default on an unsecured loan, your credit score would be impacted. However, applying for an unsecured loan is quicker and less involved than applying for a secured loan.

Where can I go to get a solar loan?

Many different types of institutions offer solar loans, including traditional banks, solar panel manufacturers, credit unions, national lending institutions, public-private partnerships, utilities, and municipalities. Most solar installers work directly with solar lenders, which makes it easy to roll financing in with the rest of the solar process. However, it's not a bad idea to shop around on your own and find the loan that's best for you and your situation.

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