Solar Financing Guide

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• Solar panels come with many benefits, but they can be expensive. 
• The average cost for a 6,000-kilowatt system is $19,260. 
• Solar financing options include personal loans, home equity loans, leases, and government programs.

Solar panels can lower your electricity costs, increase the value of your home, and benefit the environment. But they require a large upfront investment. If you don’t have thousands of dollars to shell out, you might consider financing your solar panels. Knowing how solar panel financing works will help you find the best option. 

How much do solar panels cost? 

The price of solar panels has dropped by more than 50% over the last 10 years, but it’s still expensive. According to the ​​Solar Energy Industries Association, installing solar panels in a residential home costs an average of $3.21 per watt. That means a 6,000-kilowatt system would cost $19,260.

The exact cost will vary depending on your location. Michigan, Indiana, and New Hampshire are the most expensive states for installing solar panels. However, you’ll also receive a larger federal tax credit if you live in one of these states.

How much can I save with solar panels? 

How much you can save with solar panels will depend on a variety of factors. For example, your savings will be influenced by how much electricity you use and how much the utility company will compensate you for the excess energy you send back to the grid.

Your savings are also determined by the size of your solar panel and how much power it can generate. Solar panels harness the sun’s energy and turn it into electricity, so you can’t generate as much power if your roof is facing in a direction where less sunlight hits it.

How to finance solar panels 

There are many different ways you can finance solar panels.

“Choosing the best option depends on factors like interest rates, repayment terms, and your long-term financial goals,” says Lyle Solomon, a consumer finance expert and principal attorney at Oak View Law Group. Here are five different solar panel financing options you can consider. 

Solar loans

A solar loan is a personal loan you take out to pay for solar panels. Personal loans are usually available from $1,000 to $50,000. You can apply for a personal loan through a bank, credit union, or online lender. 

A solar loan is a good option for anyone looking for fasting funding and shorter repayment terms. And personal loans don’t come with any collateral requirements. However, these loans often come with higher interest rates, and you may have to pay an origination fee.

See Insider’s picks for the best home improvement loans >>

Home equity financing for solar panels

Another option is to use some of the equity you’ve built in your home to finance solar panels. You can apply for a home equity loan, a home equity line of credit (HELOC), or do a cash-out refinance. 

When you take out a home equity loan, you’ll receive a lump sum of money with a fixed interest rate. A HELOC is a revolving line of credit and usually comes with a variable interest rate. A cash-out refinance allows you to replace your current mortgage with a higher loan and receive the difference in cash.

Using home equity to finance your solar panels can lead to lower interest rates and longer repayment terms.

“Additionally, by leveraging your home’s equity, you can potentially borrow a larger sum, allowing you to cover the upfront costs of installing solar panels,” says Brandon Juodikis, a CFP® professional and founder of BRJ Wealth Management. 

Solar leases or power purchase agreements (PPAs)

Solar leases or power purchase agreements (PPAs) can help you avoid the upfront costs that come with solar panel installations. The solar panels are installed at your home. But instead of paying for the purchase outright, you’ll make a fixed monthly lease payment to the solar company. 

The monthly payment is based on the estimated production of the solar panels. One of the biggest advantages for homeowners is that they won’t be responsible for solar panel maintenance. 

But if you take out a solar lease or PPA, you won’t be eligible for the federal tax credit. And if you move before your contract ends, you’ll have to find a new homeowner willing to take over the lease. 

203(k) mortgage refinance for solar panels

An FHA 203(k) loan is a government-backed loan that lets you roll your home improvement costs into a new or refinanced mortgage. The loan can be used to install solar panels on your home.

An FHA 203(k) loan may be a better option for borrowers with bad credit since you can qualify with a credit score as low as 500. And the interest rate will be less expensive than what you’d receive on a personal loan. 

But the loan requires mortgage insurance, regardless of your down payment amount. And you’ll have to find a contractor who can begin working within 30 days of closing. 

Government incentives and tax credits for solar panels

If you installed a solar panel system in 2022, you might be eligible for a federal tax credit covering 30% of the expenses. This tax credit includes the cost of the solar panels, contractor costs, energy storage devices, and fees related to permits and inspections. 

You must meet the following criteria to be eligible:

• Your system was installed between January 1, 2017, and December 31, 2034.
• Your solar panel is located at your residence in the United States. 
• The solar panel is new and being used for the first time. 

Solar panel financing FAQs