Introduction to Solar Loans
This page is just a very brief treatment of the types of loans available to homeowners who buy or pre-pay a lease for solar. Its purpose is to answer only one question in starting to consider whether solar makes sense for you: "Am I likely to be able to afford it?"
Whether you buy a PV (photo-voltaic) system or pre-pay a lease, an excellent way to pay for it is to take out a loan. This is because your payments on it will be made in inflation-reduced dollars; e.g., a $50.00 payment now becomes only $28.41 in today's dollars 20 years from now. If you want to understand the miraculous effects of inflation - although it's not necessary at this point in the shopping process - you'll find it on the Inflation page. In addition, the interest is tax-deductible. Again, to find out all about this important benefit (perhaps later), please see Solar Tax Credits & Deductions.
There are several types of loans available to finance a PV system. They are listed here in order of desirability to the homeowner.
A full treatment of all available types of loans (which you can safely put off to the 4th step of your shopping process) is found on Solar Financing Options.
Whether you buy a PV (photo-voltaic) system or pre-pay a lease, an excellent way to pay for it is to take out a loan. This is because your payments on it will be made in inflation-reduced dollars; e.g., a $50.00 payment now becomes only $28.41 in today's dollars 20 years from now. If you want to understand the miraculous effects of inflation - although it's not necessary at this point in the shopping process - you'll find it on the Inflation page. In addition, the interest is tax-deductible. Again, to find out all about this important benefit (perhaps later), please see Solar Tax Credits & Deductions.
There are several types of loans available to finance a PV system. They are listed here in order of desirability to the homeowner.
A full treatment of all available types of loans (which you can safely put off to the 4th step of your shopping process) is found on Solar Financing Options.
Home-Improvement Loans & Lines of Credit
The least expensive type of loan for solar is usually a home-improvement loan or line of credit, secured by a second-mortgage. They usually offer the best interest rate (either fixed or variable), longest loan term, and lowest monthly payments, whether of interest only or amortized payments of interest plus principal.
They require at least 10% equity in the house (the difference between its current market value and the total balances of mortgage loans outstanding). 20% equity usually gets you even lower interest rates. The bank relies mainly on the equity in your home, rather than on your credit score, which makes it easier for many people to qualify and get the best rates.
For example, an SCE customer with a $200/mo. average electric bill would have payments, with good-to-best financing, of between $53 and $112 per month, depending on the mix of loan factors above. But these would really cost average homeowners only $43 to $97 per month in the first year, after deducting interest from their income taxes.
They require at least 10% equity in the house (the difference between its current market value and the total balances of mortgage loans outstanding). 20% equity usually gets you even lower interest rates. The bank relies mainly on the equity in your home, rather than on your credit score, which makes it easier for many people to qualify and get the best rates.
For example, an SCE customer with a $200/mo. average electric bill would have payments, with good-to-best financing, of between $53 and $112 per month, depending on the mix of loan factors above. But these would really cost average homeowners only $43 to $97 per month in the first year, after deducting interest from their income taxes.
PACE Loans
A more expensive loan option is the government PACE program (Property Assessed Clean Energy), offered in most parts of California and other states. PACE loans in California are mainly administered by HERO and CaliforniaFirst. They require at least 10% equity in the house, but no minimum credit score is required. Interest rates are likely to be higher than for home-improvement loans.
Solar Loans
Usually even more expensive are solar loans. These are loans secured by the PV system itself, like a car loan secured by the car. They are usually available only through solar manufacturers and dealers. In some cases, but not all, they may be easier to qualify for than other types of loans. No mortgage on your house is required. The interest rates and repayment terms are usually higher than for other forms of loans, but may be disguised by burying part of the cost in a higher purchase price. To see, compare the cash price of the PV system to the "loan price." The difference is really a loan fee, added into the principal of the loan.
For a complete guide that walks you quickly through all the factors to consider to decide whether solar makes sense for you, please see the Solar Buying Guide - Step 1
