Upfront cash payment: This payment option is often the simplest. You pay for the whole system upfront, which offers the most savings over time because you own the system outright from day 1—and start saving from day 1, too. But you need the ability to pay for your system upfront, which, even without a battery, could cost $14,000 to $22,000. Prices vary based on the size of your system and increase with batteries. But with various incentives like the 30% federal tax credit that goes toward offsetting taxes paid during your installation year, paying upfront is becoming more accessible.

Solar loans: This payment method involves getting a loan through your bank or another lender. Many solar loans are offered at $0 down, so you can get your system with little to no upfront down payment. These loans typically structure the 30% federal tax credit as a scheduled payment toward the loan balance so that during tax season, when you receive a refund (or have that 30% offset your tax due to the federal government), you’re expected to use that 30% to pay down your loan to maintain the monthly payment amount.  

Typically, if that doesn’t happen, your solar loan will have an increased monthly payment. Depending on when you get your loan, you should expect to apply your 30% federal tax credit toward the loan between the 12th and 18th month of your loan,

Interest rates vary on loans based on the term (how many months or years you want to take to repay it) and where you get your loan. Typically, the monthly loan payment is lower than the amount you’ll save on your electricity with a system, which means you can start enjoying savings immediately. There are often additional costs with financing, mainly the interest on the loan and any built-in fees that allow for lower interest rates, which add cost to the system and may impact your payback period. Shorter terms with higher monthly payments tend to have higher ROI because you’ll ultimately pay a lower amount of interest over the term of the loan.  

Solar loan sources: There are several sourcing options to get a loan for your solar system. Most common are specialized solar lenders with which your installer may have existing relationships. These solar lenders will typically provide you with a response to your solar loan in seconds, and most will run a soft credit check. Alternatively, some credit unions and banks offer loans designed for solar. 

Other loan alternatives: There are multiple alternatives to solar loans. The most common is taking out a personal loan, which you can get from any bank, credit union, or national lending institution. Taking a home improvement loan is also another option. This is particularly useful if the solar project is part of a bigger renovation of your home. Home equity loans and Home Equity Lines of Credit (HELOC) are other alternatives where the lending institution will provide you with a loan or access to funds using the equity in your home as collateral. You then repay that money like you would any other loan. 

Property Assessed Clean Energy (PACE) financing is another option, which adds the cost of the system repayment to your annual property tax bill over time. All the above options can take longer to get approval, and eligibility can vary depending on your personal circumstances. 

Remember, if you pay for your system with any type of loan, you’re still eligible for the 30% federal tax credit for the cost of the system, as well as any available state incentives that can significantly lower the system cost. 

Two common third-party owner financing options usually have no upfront costs: Power Purchase Agreements (PPA) and solar leases. In both cases, someone else owns your system, so you won’t be eligible for federal or state incentives. However, you still may benefit from these incentives since they’re typically passed on to the customer in the form of lower monthly payments. These products are great if you don’t think you’d be eligible for the 30% federal tax credit but still want some of the benefits of lower monthly electricity payments. Both products, because they’re third-party owned, also mean that any maintenance for the system is the responsibility of the third-party owner.

Power Purchase Agreements (PPAs): These involve a payment based on your system’s monthly production. Essentially, whatever production the system is generating, you have to pay for that power at a predetermined, per-kWh rate. PPAs also usually have annual rate increases, so your payment can increase over time as well—though these increases are often less than your utility’s rate increases, so you still save over time. Some PPAs do offer a buyout of the system after a certain period, giving you the option to own the system at some point in the future, but this can vary depending on your PPA provider. Be sure to read any potential agreement carefully for details on what happens at the end of your PPA term and any buyout options you may have. 

Solar leases: These involve a payment that’s fixed for your system. Unlike PPAs, the payment amount isn’t necessarily linked to the actual system production but to the estimated annual production. The fixed monthly payment can sometimes have an escalator, which is an annual percentage increase in the monthly payment, but again, most times, this is less than the utility rate increases you’re likely to face. Ideally, these fixed monthly payments will be less than what you would be paying for electricity from your utility, giving you savings that start right away. Leases are usually 20 to 25 years, and like PPAs, some providers offer buyout options for you to own the system. We encourage you to review the full text of any lease agreement to find the exact details of the buyout and what might happen to the ownership at the end of the lease. 

This chart can help you determine which payment option is the best for your current situation. 

You can learn more here: Solar financing options  

What considerations should I have for loan terms? 
The factors you should consider aren’t much different than for other loans, such as for a car purchase. Look at interest rates, repayment times, monthly repayment costs, and whether there are any fees attached to the loan. Then, balance those against your expected monthly savings on electricity to see what works for you financially. If you want to own the system outright sooner and can afford a higher monthly payment, a shorter term may be the best option. If you want the lowest monthly payment, then you may want to choose a longer term. 

Do credit scores matter for solar financing? 
If you’re paying cash upfront for your system, your credit score is a non-issue. However, if you intend to get a loan for your system, your lender will likely consider your credit score when approving or setting terms for your loan. Similarly, your credit is considered for leases and PPAs. However, it’s not necessarily as stringent since those options are through a third-party owner. 

Are there prepayment penalties for solar loans or leases? 
That will depend on your financing partner. Some lenders do include a prepayment penalty since they lose out on interest money if you repay it early. Be sure to ask your lender whether they charge an early repayment penalty. 

What type of partnerships do installers have with lenders? 
You’ll often see solar installers offering financing for systems. This is usually in partnership with lenders who offer loans or third-party owners who offer solar leases or PPAs. The reason you may see dealers offer financing first is that the upfront cost of a system can be a barrier to getting solar for many homeowners. Much like how financing can make it possible to buy a car, spreading the cost of the system over several years can make going solar more accessible. 

Is free solar a scam? 
The energy generated by the sun is free, but the equipment to harness it still costs money. In general, if someone is advertising “free solar,” proceed with caution. Their offer might mean you don't pay anything upfront or that your electricity payments can be redirected to cover the monthly cost of installing solar panels, so there’s no additional expense for you. There are also certain places where the incentives can almost entirely offset the cost of electricity or solar installation. However, we strongly encourage you to read the details of any agreement to fully understand the incentives and the total costs of the system.

Learn more about home solar financing options