Solar panel loans are just one type of solar financing. You also can lease solar panels, enter into a power purchase agreement or choose from other common forms of financing.
State and Federal Solar Incentives
Though not a form of financing, federal solar incentives allow homeowners to deduct 26% of the cost of a solar panel system from their federal taxes for systems built in 2020 to 2022 and 22% for those purchased in 2023. The program will expire in 2024 unless it is renewed by Congress.
State solar incentives vary, but many states offer their own tax credits or rebates between 10% and 20% of the panel costs. Depending on your location and utility provider, additional special financing programs may be available.
Home Equity Loan
With a home equity loan, you can borrow against the equity in your home and use the proceeds to buy solar panels. Because a home equity loan is secured by the house, this type of financing will typically come with a lower interest rate than a solar panel loan—but it also comes with the risk of foreclosure if you default. Home equity lenders generally only allow homeowners to borrow up to 85% of their equity in the home.
Home Equity Line of Credit (HELOC)
A HELOC is similar to a home equity loan, but instead of getting a lump sum of cash, you get a line of credit that you can access on an as-needed basis. HELOCs typically have variable interest rates, so they are less predictable than personal loans and home equity loans.
If you have equity in your home, you can refinance your mortgage and get cash to cover the cost of purchasing and installing solar panels. Lenders generally require homeowners to retain at least 20% equity in their home when getting a cash-out refinance.
Mortgage interest rates are lower than for unsecured alternatives, but a cash-out refi will increase the size of your mortgage and the amount of interest you pay on it over time. You’ll also have to pay closing costs, which can be 2% to 6% of the mortgage amount.
Lease or PPA
With a solar lease, the homeowner makes monthly payments to the solar panel installer but doesn’t own the solar panels. A PPA, on the other hand, involves a homeowner installing solar panels at the cost of the utility company, then buying electricity at a rate lower than the typical cost of power. Under both structures, maintenance is typically handled by the solar panel owner—not the homeowner.
These arrangements can be a good option if you want to transition to solar power but don’t have the money to pay for panels upfront or make large loan payments. Leasing might also be an optimal choice for those who don’t want the hassle of maintaining panels themselves. Still, solar panel loans are the best option if you want to own your solar panels outright and enjoy the maximum financial benefits.