How to Finance Your Solar Panels

workers fitting solar panels

Harnessing renewable energy is easier than ever. Solar panels provide an eco-friendly and cost-effective solution to meet your electricity demands. Unfortunately, many homeowners still wonder how they can afford to go solar. Transitioning to solar energy is a wise investment that reduces your carbon footprint and offers long-term financial benefits. Read on to explore smart solar strategies and discover how to finance your solar panels. 

How Much Do Solar Panels Cost?

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Solar panels reduce your annual energy costs and increase your home’s value, making them a wise investment for many homeowners. System costs vary depending on several factors, including the type of solar panels, size, location, and labor costs. The average total cost for installation ranges between $15,000 to $26,000 before incentives. 

Solar Energy Incentives

Most states incentivize solar installation through financial and policy-based programs. These incentives make solar energy more affordable and accessible. Explore the solar incentives and rebates offered by your local government or utility companies. 

Options include tax credits, rebates, performance-based incentives, and grants. The specific incentives in your region can significantly reduce the overall cost of your photovoltaic (PV) panels and your financing needs. 

Net Metering

Net metering is a billing arrangement and state-based policy that allows solar system owners to receive a credit for the excess electricity their solar panels generate and feed back into the grid. 

Let’s explore how the process works:

Solar production and consumption: Your solar panels generate electricity throughout the day, and your home consumes the electricity. 

Excess electricity: On sunny days, your solar panels may generate more electricity than your home needs, and your system sends the surplus energy to the national grid.

Metering: Your solar panel system includes a bidirectional meter monitored by your utility company to measure consumed electricity and excess electricity returned to the grid.

Credit: Your utility company credits your account for future use when your solar panels are not producing enough energy to cover your consumption, such as on cloudy days. 

Net billing: At the end of every month, your utility company bills you for the net energy you consumed from the grid. If your solar system generates more electricity than you use during this period, you pay only fixed solar charges set by your electricity company. 

Net metering reduces your utility bills and maximizes the return on your solar investment. Remember, these policies vary by location, and your local government and utility company sets the regulations and limitations.

Federal Solar Tax Credit

Solar panels are eligible for the Investment Tax Credit (ITC). Systems installed between 2023 to 2032 are eligible for a 30% credit. There is no maximum amount a homeowner can claim and expenses include: 

  • Solar panels or cells 
  • Contractor labor costs, including permitting fees and inspection costs
  • Balancing equipment, including wiring, mounting equipment, and inverters
  • Energy storage devices with a capacity rating of 3 kilowatt-hours or greater
  • Sales tax on expenses

Tax incentives apply to residential and commercial installations to encourage solar adoption. It reduces the amount of federal income tax you owe, resulting in substantial savings when installing solar.  

Purchasing Solar Panels With Cash

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Purchasing your solar panels with cash involves paying the full cost upfront. By paying cash, you become the owner immediately and energy generated is a direct source of savings on your electricity bills

The process requires a substantial upfront investment, which isn’t feasible for everyone. However, avoiding loans means no interest charges, saving you money in the long run. Cash simplifies an already complex process and leads to a faster return on your investment.

Solar Financing Options

There are several financing options available for home solar installation. Common options include various solar loans, personal loans, a solar lease, and Power Purchase Agreement.

Solar Loans

While a cash purchase offers the most straightforward ownership and long-term savings, solar panel financing options like home equity or personal loans allow for solar adoption with lower upfront costs. 

Personal Loans

Personal loans are one of the best financing methods available. However, they require excellent credit or you will be stuck with a high-interest rate, increasing your long-term costs. 

These unsecured loans do not require collateral and typically come with fixed interest rates and monthly payments. Banks release funds quickly, making them a great choice for homeowners looking to install their solar panels quickly.   

Personal loans offer a balanced approach, providing the benefits of solar panel ownership and long-term savings while spreading the cost over manageable payments with a low-interest rate. Review loan terms, interest rates, potential origination fees, and total repayment amounts to make an informed decision that aligns with your financial situation. 

Mortgage Loans

Home renovation loans like Fannie Mae HomeStyle Renovation and FHA 203(k) home improvement loans offer financing for home upgrades, including solar panel installation. 

FHA 203(k) Loan

The Federal Housing Administration offers the 203(k) loan for both new and existing properties. It combines the cost of purchasing or refinancing your home with the cost of eligible renovations into one mortgage loan, meaning you handle one monthly payment. 

The FHA 203(k) features low down payment options and flexible qualification requirements, including low credit scores. However, they have longer processing times, borrowing limits, and higher interest rates than personal loans.

Fannie Mae HomeStyle Renovation Loan

Fannie Mae, a government-sponsored enterprise, offers its HomeStyle Renovation loan to allow borrowers to purchase or refinance a property along with approved home improvements, including solar installation. 

Like the FHA 203(k) loan, the HomeStyle loan offers flexible down payment options and combines your renovation project costs into one monthly payment with your mortgage. These loans typically come with higher fees and closing costs, but they are a smart choice for those buying a home who also want to install solar. 

Property Assessed Clean Energy (PACE) Loan

PACE loan options are unique to renewable energy. These loans help homeowners fund energy-efficient and renewable energy upgrades, like solar equipment. PACE programs are location-based, and each location has specific guidelines and approved equipment. 

PACE loans are transferable, come with no upfront costs, and typically have longer repayment periods. Transferring the loan is easy because it is tied to your property rather than you. Unfortunately, these loans have higher interest rates and strict qualification criteria.

Your lender determines your repayment amount as an assessment of your project cost added to your property tax bill. Your local government collects the payment and remits it to your PACE program.  

Home Equity Loans and HELOCs

Home Equity Lines of Credit (HELOC) and home equity loans are types of financing that allow you to borrow against your home’s equity, and you can use both options to finance a solar installation.

Your home is collateral, so you must make the required payments to avoid defaulting and potential foreclosure

Home Equity Loan

A home equity loan, or second mortgage, is a lump sum borrowed against the equity in your home. Equity represents the difference between the market value of your home and the outstanding balance on your mortgage. 

Home equity loans offer fixed interest rates and a single disbursement funding. Unfortunately, the fixed rates are often higher, and these loans come with additional closing costs.


A Home Equity Line of Credit is a revolving credit line that allows you to borrow funds against the equity in your home. They have variable interest rates and two phases. In the draw period, you can access your funds for a period of five to 10 years on average. The second phase is your repayment phase. 

A HELOC offers flexibility. You can borrow funds as needed during your draw period, paying interest only on the amount used. However, your payments increase during your full repayment period, depending on its length, to cover your outstanding balance. 

Solar Lease

A lease is another financing option allowing you to have solar panels installed without purchasing them outright. A third-party solar company owns and maintains your solar panels under your lease agreement. You pay a fixed monthly payment for the use of the panels and the electricity they produce.

Let’s explore how the process works: 

  • Solar installation: The company installs your solar panels.
  • Lease agreement: You enter a lease agreement with the company. Terms usually last 15 to 20 years. 
  • Payments: You pay fixed monthly lease payments to the company. Payments are typically lower than your previous electricity bills, allowing you to save money on home energy costs immediately.
  • Maintenance: The solar company owns your solar panels and handles their maintenance and repairs during your lease term. 
  • Energy Production: Your solar panels generate electricity, saving you money on your monthly energy bills.

With a solar lease, you are not responsible for maintenance or repairs. Unfortunately, your home does not benefit from the increase in property value, and solar leases have long terms. Breaking a lease requires paying a termination fee, and your payment remains fixed as solar technology costs decrease.  

Power Purchase Agreement (PPA)

Like a lease, a PPA is a contract between you and a solar energy provider. The solar company installs and operates your solar system. In return, you purchase the electricity generated by the solar system at a predetermined rate during your contract period. Contracts typically range between 10 to 25 years. 

Your PPA rate is typically lower than your current utility company’s electricity rate, providing you with immediate savings. The third-party solar provider remains responsible for all maintenance and repairs. However, power purchase agreements require a long-term commitment, and many providers require a credit check.  

Secured vs. Unsecured Solar Panel Loans

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Secured and unsecured loans are the two main types of borrowing options for homeowners. Each has its own characteristics, including collateral, eligibility, interest rates, and terms. 

Secured Solar Panel Loans

Secured loans require collateral, but they come with lower interest rates, resulting in lower borrowing costs. If you default, your lender can seize your collateral, typically your home, to recover your outstanding loan amount. 

Secured loans are more accessible and require lower credit scores. They typically have longer repayment terms, allowing you to spread your payments out over more time, decreasing them. Common types of secured loans include auto loans, home equity loans, and HELOCs.

Unsecured Solar Panel Loans

Unlike secure loans, unsecured loans do not require collateral, resulting in higher interest because of the lender’s increased risk. Lenders assess eligibility based on your creditworthiness, income, and financial history. 

Unsecured loans have shorter repayment periods and include credit card loans and personal loans. 

Assessing Your Return on Investment (ROI)

Solar panel ROI varies depending on initial cost, local electricity rates, incentives, and the amount of energy your solar energy system generates. Most residential solar systems have a payback period ranging from five to 10 years

Once you have paid off your solar panels or made your last loan payment, you can enjoy significant savings on your electricity bills for the remaining life of your solar power system, typically 15 to 20 years. 

Choosing the Right Financing Strategy for You

Maximizing your financial benefits of going solar requires choosing the best financing strategy to meet your needs. Consider the following factors when selecting your financing option:

  • Budget: Evaluate your budget and determine the maximum amount you can afford to invest in your solar panel system. Consider upfront costs and monthly payments.
  • Loan terms: Compare loan terms and interest rates offered by lenders, credit unions, or other financing providers. Look for competitive rates and favorable repayment terms. 
  • Creditworthiness: Understand your credit score and credit history. Good credit leads to better financing options and lower interest rates.
  • Ownership preferences: Decide whether you are comfortable with a lease or Power Purchase Agreement. Ownership offers long-term savings and access to incentives, while leasing requires lower upfront costs and reduced maintenance responsibilities. 
  • Incentives: Research incentives and rebates in your area. Federal tax credits, state incentives, and utility rebates reduce your overall cost. 
  • Transferability: If you plan to move before your repayment term ends, consider whether the financing option is transferable. Repayment terms and lease options typically impact your home’s marketability. 
  • Repayment: Check for repayment flexibility, such as the ability to make early payments without incurring a penalty. Flexibility helps you pay off your loan quicker and save on interest. 
  • Professional guidance: Contact a solar expert and financial advisor to fully understand the pros and cons of each financing option. 

FAQ About How to Finance Solar Panels

Do leased solar panels include a warranty? 

Yes, leased solar panels typically include warranties covering performance and maintenance. Your specific warranty terms depend on your leasing company and your agreement. 

Do I need a down payment for solar financing?

Maybe. A down payment amount varies depending on the financing option. Some loans require little to no down payment, like home equity loans, while others require a percentage of the total cost upfront. 

Are there penalties for paying off my solar loan early?

Sometimes. Penalties for early repayment vary depending on your loan terms. Look for a solar loan with payment flexibility. 

How much will solar panel installation reduce my electricity bill?

High-quality panels reduce solar electricity bills by 50 percent to 70 percent, and most residential solar power systems in full sun have an average payback period ranging from five to 10 years. 

Solar Panel Installation Next Steps

Financing solar panels offers you the opportunity to embrace renewable energy and reduce your grid reliance. Whether you choose a solar loan, lease, or PPA, the right financing strategy can make solar installation feasible and rewarding. 

If you are ready to explore your solar financing options, let RoofGnome connect you with a solar specialist in your area so you can make an informed decision and harness the power of the sun.

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Kimberly Magerl

Kimberly Magerl is a writer and data analyst specializing in home improvement, DIY, roofing, and solar technologies. She enjoys growing vegetables in her garden, getting outdoors, and transforming her space with DIY projects. A resident of Texas, when she isn't gardening, Kimberly enjoys trying new recipes and cooking with her home-grown herbs.