What to know about solar loans

Solar loans, combined with tax credits and energy savings, can help finance solar panel installation

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Solar loans can help finance solar panel installation. Find out how to get a solar loan and if it’s the right move for you. (Shutterstock)

Solar panels can potentially save homeowners between $10,000 and $30,000 on electricity over the life of their solar system, according to solar marketplace EnergySage. And potential for tax credits can increase the year-over-year benefits of solar energy in the home even more. 

But installation isn’t cheap — about $20,000 on average, EnergySage reports. A solar loan could help cover the cost, so if you’re considering going solar, it’s important to learn how solar financing works, whether it’s worth it to get solar panels, and the tax benefits of a solar panel system.

Visit Credible to learn more about personal loans for solar panels and see your prequalified rates.

What’s a solar loan?

Solar loans are similar to home improvement loans. These unsecured personal loans help you fund the installation of solar panels for your home, and they don’t require collateral. Instead of paying the full expense upfront, you spread your payments out in installments. 

If you’re approved for a personal loan, you’ll receive a lump sum of money (typically via a direct deposit). One of the best features of personal loans is you can get your money quickly — some lenders even offer same-day funding. You’ll make monthly payments with a fixed interest rate, and you’ll generally have a repayment term between two and seven years. 

You can apply for a solar loan from a personal loan lender or directly through a solar panel company that offers in-house financing.

Is it worth it to get solar panels?

Solar panel installation is expensive. The average five-kilowatt residential system can cost between $15,000 and $25,000 before tax incentives and credits, according to the Center for Sustainable Energy. And it takes between six and nine years on average to recoup those costs.

To determine if the cost of solar panel installation is worth it, ask yourself a few questions:

  • How much electricity do you currently use, and how much does it cost?
  • How much sunlight does your home get? (Homes in states with year-round sunlight, like Arizona, may benefit more from solar panels than homes in rainier climates, like Washington.)
  • How big of a solar energy system would you need to install?
  • Would you buy or lease your system?

After considering those factors, compare quotes from a few different solar companies. Then, get prequalified for a personal loan and compare personal loan rates and terms to the financing options offered by the solar companies. Finally, compare the total costs of financing the solar installation to the estimated savings the solar panels will offer during the life of the loan. 

You can use Credible’s personal loan calculator to see how much you’ll pay over the life of a solar loan from a personal loan lender.

Solar panel tax benefits

Currently, you can claim a federal residential solar energy tax credit of 26% of the cost of the system. If you install a system in 2023, the credit goes down to 22%. This solar tax credit is set to expire in 2024, unless Congress renews it. Visit the Office of Energy Efficiency & Renewable Energy’s website for more information on this tax credit.

Your state may also offer incentives for installing solar panels. Check out the Database of State Incentives for Renewables & Efficiency to find out what tax benefits you might be able to take advantage of.

How to get a personal loan for solar panels

Follow these steps to get a personal loan for solar panels:

  1. Check your credit. Check your credit report for free on a site like AnnualCreditReport.com, and address any errors that may prevent you from securing the best solar loan terms possible.
  2. Compare lenders. Compare multiple lenders to see which will offer the lowest rates and most flexible terms for your financial situation.
  3. Apply. When you identify the best rate and terms, lock them in by submitting your application.
  4. Receive your loan funds. If your loan is approved, you’ll receive your loan funds, sometimes as soon as the same business day depending on how quickly your bank processes the transaction.

Other solar loan financing options

You may also want to consider the following options for financing your solar panel system:

  • In-house financing In-house financing allows you to fund your solar panel installation directly through the solar panel company.
  • Cash-out refinance — A cash-out refinance replaces your existing mortgage with a new mortgage while tapping your home’s equity to pay for another expense. But this process puts your home on the line, since you use it as collateral for the loan.
  • Home equity loan or HELOC A home equity loan or home equity line of credit (HELOC) also allows you to borrow money against your home’s equity. With a home equity loan, you receive a lump sum of cash, typically up to 80% of your home’s equity. A HELOC is a revolving line of credit, unlike a traditional loan — you’re allowed to withdraw as much or as little as you’d like, up to a set limit. One con is that HELOCs have variable interest rates, which may increase your overall borrowing costs.
  • Leasing or using a power purchase agreement — Leasing solar panels is similar to leasing a car: You’ll use the solar panel system for a set period of time. You’ll pay monthly payments and may not need to put much money down initially. The downside is that you won’t own this system and won’t be eligible for tax credits. A power purchase agreement is a specific arrangement where a developer installs and operates a solar panel system on your home — you don’t own the system, but you buy the electric output for a set period. This means you can save on electricity during that time frame, but the owner of the system is the one who gets the tax credits.
  • Fannie Mae HomeStyle Energy mortgage You can use a HomeStyle Energy Mortgage to finance energy conservation installations when purchasing or refinancing a home. These loans qualify for a $500 additional Loan Level Price Adjustment credit. But if you aren’t buying a home or refinancing your current home, this may not be the right option for you.

Solar loan FAQs

Here are the answers to some commonly asked questions about solar loans.

Is it better to buy or lease solar panels?

The most beneficial decision is the one which fits your financial situation best. Buying solar panels can be expensive, but you may enjoy long-term savings. With leasing, you’ll pay less money upfront, but you won’t qualify for the federal tax credit.  

What credit score do you need for a solar loan?

While it’s possible to get a solar loan with a credit score below 650, lenders generally offer the best rates and terms to borrowers with good to excellent credit scores of (670 and above).

What happens to your solar panels if you move?

If you bought your solar panels, you can either include them in the sale of the home when you move, or take them with you. If you’re leasing your solar panels, you also have two options: You can buy out the lease or negotiate for the next homeowner to take over the lease.

How do you choose the best solar loan?

The best solar loan is the one that allows you to comfortably afford the monthly loan payments while still being able to maintain your lifestyle and achieve your other financial goals.

Can you refinance solar loans?

You can refinance a personal loan for solar panels through your original lender or another lender by taking out a new loan that pays off your original loan. Just be sure to check with your lender to find out if it allows you to refinance your loan.

Does a solar loan affect your credit score?

A solar loan, or any personal loan, can help your credit score by building positive credit history and creating a diverse mix of credit. But if you miss payments, it can harm your credit score

Credible lets you easily compare personal loan rates from various lenders in minutes, without affecting your credit score.