The Benefits of Utilizing Solar Panel Loans

When many homeowners are considering solar, they may get turned off because they think they can’t afford it. The truth is that most homeowners can get their solar financed to own with little to no money down, and they will be paying less monthly to own the solar than they would to continue paying their power bills. This is made possible through solar panel loans, which can provide a quick and affordable way for homeowners to begin installing solar panels and greatly reduce or eliminate their power bills.

Who Can Solar Loans Benefit?

For homeowners who have good credit scores, solar loans present the least expensive form of solar financing, as in, they save the homeowner the most money in the long run. This is because, unlike solar leases, homeowners are able to pay off solar loans early to avoid additional interest. The true value in solar loans is reaped after the system is paid off when the homeowner is no longer making solar payments or power bill payments, so solar power loans typically are more beneficial to homeowners who plan on staying in their home for a long period of time. Solar loans also allow homeowners with a federal tax liability to claim the 30% Federal Tax Credit, which saves them even more money.

How Do Solar Loans Work?

Solar loans work like other loans like a car or home improvement loan. The homeowner applies for a loan with a third-party financier, and the financier provides the capital for the loan in either a lump sum or as a line of credit. The homeowner then pays back the financier in monthly payments, in a term that the financier and homeowner agree on. This term determines what the interest rate on the loan will be. While some solar loans require collateral, some do not.

The beautiful thing about solar loans is that they allow the homeowner to put the money they were throwing away at the cost of the power company towards installing solar panels and owning their solar system. As the solar energy allows the homeowner to zero out their bill, the homeowner no longer has to pay the power company after installing, which allows them to use the money they once put towards their electric bill for energy efficiency. They can then take that money they are saving, and pay the solar company instead, so that they are paying themselves, for an investment in their home that will save them money, instead of the power company.

Types of Solar Loans

Home Equity Loans

Home Equity solar loans require collateral in the form of home equity, where the homeowner borrows against their home equity for the loan. With home equity loans, the solar is paid off in monthly payments that are steady and do not change. The capital for the loan is provided upfront in one lump sum. Home equity loans normally have interest rates of around 5%-7.5% and require 7-20 year terms. The homeowner may be able to write interest on home equity loans.

Home Equity Line of Credit  (HELOC)

Another solar loan that requires collateral is a Home Equity Line of Credit (HELOC). Similar to a Home Equity loan, the homeowner borrows against the equity in their home. With a Home Equity Line of Credit, the financier provides the capital for the loan in the form of a line credit. The homeowner is then able to draw upon that line of credit as needed, as long as it is in the confines in a term agreed upon between the homeowner and the financier which is typically 10-15 years. Much like any other line of credit, when the homeowner makes their loan payments, the equity that they have to draw upon is refilled. Like the home equity loan, the interest from the HELOC may be tax-deductible.

Property Assessed Clean Energy Loans (PACE)

For homeowners with a low credit score, Property Assessed Clean Energy Loans may be a good option. With PACE loans, the loan amount is based on the assessed value of the homeowner's property instead of their credit score. That’s why it’s paid back through the property tax bill. The only downside of PACE loans is that they can complicate the sale of the home.

Mosaic Solar Loans

Solar lending company Mosaic has one of the most streamlined and simple lending processes out there. This low-interest loan can often allow for zero money down and have multiple term options and fixed interest rates. There are also little to no loan fees and no prepayment penalties. There are currently three different loan terms under Mosaic: a 10-year loan with 3.99% interest, a 15 year at 4.99%, and a 20-year loan at 5.49%.

The Benefits of a Solar Loan

The Federal Solar Tax Credit

One of the main benefits of going solar with a solar loan is that the homeowner is eligible for the Federal Solar Tax Credit which incentivizes homeowners to be more energy efficient. The Federal Solar Tax Credit allows homeowners to deduct 30% of their solar installation costs from their federal tax liability. So if a homeowner gets a $25,000 system installed, they will be able to deduct $7,500 from their tax liability. The cool thing about the tax credit is that it is able to be rolled over to the next year if the homeowner doesn't have enough tax liability the year they get installed.

Homeowners who want to take advantage of the Federal Solar Tax Credit through running their home off of solar power should know that starting after 2019, the tax credit will start to phase out until there will be no tax credit for residential installations, and only a 10% tax credit for commercial installations after 2021. So homeowners who are thinking about going solar should keep in mind that, to get the best deal, they should go solar before 2020 to maximize their savings.

Short and Long-term Savings

The great thing about going solar with a loan is that it presents short-term and long-term savings. Due to the way loans are set up - with the monthly payment being less than the monthly power bill was previously - they allow solar homeowners to save in month one. Most loans now don’t require any money down, and once the solar systems are installed, the solar energy produced allows the homeowner to zero out their power bill which is one of the main incentives to start as soon as possible. So that means that in the first month, the solar homeowner will owe the power company no money - and will owe the finance company a payment that is less than their power bill was. That difference equals out to cash in pocket, even in the first month.

The real value from solar comes from the savings in the long-term. After the homeowner has paid off the loan to the financier, which they can often do as quick as they please due to the lack of prepayment penalties with most loans, they will no longer be paying for their power or making monthly solar payments. So the quicker they pay it off, the less interest they will pay, and will be doing nothing but saving from then on out. In this way, a solar loan can be much cheaper than a solar lease, as the homeowner is able to pay it off early and save a lot of money on the interest they would have had to pay down the line.

Protection From Rate Hikes

Solar also helps homeowners save money by shielding them from electric rate hikes. This makes it so that, as electric rates go up, savings garnered from the solar energy compound. In this way, it is hard to predict just how much solar will save any given homeowner, but the homeowner can rest assured that they will be substantial. If SDGE’s recent announcement of an upcoming 28% rate hike in the coming years is an indicator, then it’s likely that the compounded savings will be greater than we can imagine.

Add to Home Value

One thing many homeowners don’t consider is the added home value solar can present. Recent studies have found that installed solar can add an average of around $20,000 to home values. This can make the home much more attractive to buyers, especially if the loan used to install the solar is paid off. Solar leases can often complicate the home buying process, and if the homeowner is trying to pay it off before the sale, it is often more expensive, as they have to make the payments they would have made for the entirety of the lease.

So as you can see there are many benefits to going solar with a solar loan. The ability to switch a power bill for a solar payment is alluring in the beginning, along with being able to take advantage of the federal solar tax credit. In the long term, the eliminating of both a power bill and a solar payment, along with the compounding savings from electric hikes, make going solar with a loan too sweet of a deal to pass up. Add a 25-year SunPower warranty on top of that, and you have a solar combo that will keep giving for years to come. Contact us today to learn more about solar loans and if they are right for you.