July 20, 2018

What Types of Solar Financing is Available?

Solar Financing

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You've been thinking about installing solar on your home. But, you don't know if you can afford it. How much will it cost you?Installing solar panels in your home comes with tons of benefits. It might seem too expensive for you. But, did you know that there's financing available?You've many options available when it comes to solar financing. But, what is the right one for you? Not sure where to start?We'll tell you all there's to know about the types of solar panel financing. Ready to learn more?

What are your solar panel financing options?

Solar Financing: What Are Your Options?

In 2006, the Solar Investment Tax Credit (ITC) was put in place to promote the use of solar systems. Since then the cost of installing solar systems has gone down by about 73%. Now the tax credit available is the Residential Renewable Energy Tax Credit. You could be eligible for up to 30% tax credit. Your tax professional can give you a better idea about your eligibility for this tax credit. Solar systems are becoming more popular because of the tax credits, availability and environmental benefits. When it comes to solar panel financing, you've options ranging from solar loans to your local PACE program. Here are the most popular financing options available:

Secured Solar Loans

You might've heard about secured loans before. Secured solar loans work the same way. The only difference is that these use your home as collateral. The loan terms for secured solar loans are from 5 to 20 years. The interest rate will depend on the requirements from the lender and your credit profile. Due to many of the other better options on this list, rates are not as competitive as they once were.

Unsecured Solar Loans

If you haven't heard about unsecured loans before, the main difference is that for these loans you won't have to give any collateral. This would be a guarantee of payment. When it comes to unsecured solar loans, the collateral equivalent is the solar panels. This type of loans doesn't have the FHA guarantee benefit. Unsecured solar loans have the same terms as secured solar loans. The terms are between 5 to 20 years. The solar loan interest rates for these loans are between 3.5 to 9 percent. The rates they offer you might be higher than for a secured loan. But, you aren't placing any collateral on the line. Some people may consider these loans less attractive because they aren't tax deductible. Also, the origination fees for these loans may be higher than the fees for secured solar loans.

Property Assessed Clean Energy Programs (PACE)

This program is available for residential and commercial properties. States and municipalities offer these programs. You should do your own research to make sure your state or municipality offers this type of program. Right now, more than 30 states offer the Commercial PACE program. The Municipal PACE program uses your home as the collateral. There might be FHA guarantee available. To make sure, you should do your research and contact your local PACE office for more information. As of this moment, the residential PACE program is available in 3 states. The states of California, Missouri, and Florida have their own programs. California is the state with the most programs. It offers 10 programs. The loan terms vary depending on the program you choose. The interest rates for this type of financing are 3 percent or more. Besides the benefit of PACE being a government program, this type of solar panel financing is tax deductible.

Solar Leases

A solar lease can be seen as renting your solar equipment which is pretty similar to what you are doing with the utility company. You'll agree to make a fixed payment or rent every month for the use of the solar equipment. The payment is set using an estimate of the amount of electricity the equipment will produce on a monthly basis. You pay the company for the right to use the equipment and the electricity it produces. When you get a solar lease your payments aren't eligible for tax credit. Since you aren't the owner of the equipment, the tax credits belong to the company who's leasing you the equipment. Most of the solar leases are for a term between 20 to 25 years. At the end of the lease term you don't own anything. So you miss out on benefits like home value increasing and so forth.

Solar Power Purchase Agreements (PPAs)

A PPA is almost identical to a solar lease, except that you don't have a fixed monthly payment, you only pay for the power that you actually use. If you cannot qualify for a solar loan, a PPA is you next best option. Many people use the term Solar PPAs interchangeably with Solar Leases. Even though both work in a similar way, they aren't the same. When you get a Solar PPA, you're paying to buy the electricity that generates the system at a set per-KWh price. Again foregoing any ownership benefits.

Should You Get Solar Panel Financing?

Yes, you should get solar financing if you want to get your solar system for your home or business. Remember that not all types of financing are equal. So before contacting the financing company, you should do your own research about your options. If you're thinking about getting solar equipment for your business, the terms of the loans or leases won't be the same as for a residential purchase. When you aren't sure about purchasing your equipment, a lease or PPA might be the best option for you. Look for a financing option that meets your needs. So you've decided to finance your solar panels. Don't know how to get started? We can help! Contact us to get your solar analysis today. P.S. All interest rates above are as of this writing and should not be considered a quote for you.

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Nick Gorden

Nick Gorden is the Co-founder and CEO of Shine Solar. Nick’s energy, enthusiasm, and leadership is contagious and has contributed to attracting a talented and successful executive team. His time is focused on strategic growth, maintaining profitability and creating the optimal customer experience. Nick has started, managed and sold companies within the communications, mortgage lending, insurance and real estate industries resulting in tens of millions of dollars of market value to investors.

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