In the quest for a greener planet, homeowners are increasingly turning to solar energy as a viable, sustainable power source. Solar loans offer financially accessible means to adopt renewable energy. But how exactly do solar loans work, and what advantages do they present? This blog dives deep into what you need to know about the mechanics of solar loans, shedding light on every aspect from eligibility to repayment, and the multitude of benefits they offer.

What is a solar loan?

Solar loans are designed specifically to facilitate the installation of solar energy systems. They function similarly to other home improvement loans but with terms and conditions tailored to reflect the unique benefits and repayment outlook of solar installations. By leveraging solar loans, homeowners secure the necessary funding for solar projects without the immediate out-of-pocket expenses, thus enabling a smoother transition to renewable energy.

How do solar loans work?

Solar loans work just like other loans: you sign up to pay back the loan over time with interest. Loans may vary based on terms, rates, and monthly payments but they all follow the same process to get started.

Getting approved

After talking with a solar installer, homeowners apply for a solar loan through a solar financing company. To qualify for most solar loans, homeowners must generally have good credit to secure financing. These measures are to ensure that the homeowner is able to pay for their loan.

Ownership

Once the system is installed and the loan is funded, you own the solar energy system. 

Payments

Once approved and the system is installed, the loan funds are used to purchase your solar panel system. Typically this amount will be paid directly to your solar contractor. This covers the panels, inverters, wiring, mounting hardware, installation, and other associated costs. The monthly payment amount is determined by the loan amount, interest rate, term, and other loan features.

Variety of terms: 

• Terms of solar loans vary, typically from 7 to 25 years.

• Longer terms lead to lower monthly payments but higher total interest costs.

• Solar loans often include promotional or introductory offers that allow the customer to benefit from lower initial monthly payments and then keep them low if they decide to use funds from tax credits or other sources to pay down the loan. 

• Interest rates and repayment periods vary by lender and credit profile

Maintenance

You are responsible for maintaining and repairing your solar panels. With manufacturer warranties lasting between 10 and 30 years, upkeep is manageable and assures long-term benefits.

End of loan

At the end of your loan, you will no longer be responsible for making payments. You will own the system and will be able to benefit from the savings it provides for the remainder of its useful life. 

Financial benefits

• A solar loan enables immediate ownership of the solar system, allowing you to claim all associated tax credits and incentives. The most notable is the federal solar investment tax credit (ITC), which allows you to deduct 30% of your solar system cost from your federal taxes. You should consult with a licensed tax professional to understand if you are eligible to claim tax credits and incentives. 

• Owning a solar system can increase your home's value.

• Loans offer homeowners the greatest long-term savings and return on investment. 

• The energy cost savings generated by the system can offset the loan payments, and once the loan is paid off, the savings can be even more significant.

• Solar loans offer fixed payments which allow homeowners predictable spending.

Other ways to pay for solar

In addition to solar loans, homeowners have other options when choosing to go solar. There are two other main ways you can pay for solar: solar leases and solar power purchase agreements (PPAs). All three options have their pros and cons and homeowners can choose what makes sense for them and their homes’. Learn about the three ways to pay for the switch to solar here. 

The bottom line

Solar loans present a wise avenue for homeowners aiming to transition to renewable energy with financial flexibility. They allow immediate ownership, enable access to tax credits and incentives, and enhance your property's value. With many options of terms to choose from and the benefit of predictable, fixed payments, solar loans can ease the initial financial outlay.