An increasing number of people are interested in solar energy, which makes excellent financial sense. According to SolarReviews.com, solar panels can save the ordinary American family around $1,400 in electrical costs every year.
The truth is, solar panels are not free. You will need to spend approximately $20,000 for a home solar system, depending on the number of panels you require. However, homeowners can break even in around 7 to 8 years despite the massive cost.
But unless you have $20,000 to invest in a solar system, you might need to consider getting a solar loan initially, which might make you wonder if your credit score is good enough to qualify you for a solar loan.
Well, this is what we will answer in this article, discussing everything you should know about solar financing.
What Is A Solar Loan?
A solar loan is precisely what the name suggests—a loan that lets you buy a solar energy system and pay it off over time. However, unlike solar leasing or a Power Purchase Agreement (PPA), you own the solar energy system outright, which can afford you government tax incentives.
According to the US Solar Energy Technologies Office, monthly payments on a solar loan are usually smaller than a regular energy bill. However, making a bigger monthly payment and cutting down the loan term might save you more money in the long run. And you might even be able to secure a subsidized solar loan with a below-market interest rate.
Types of Solar Loans
Solar loans are available in several forms, with features you may not find with a regular personal loan. Here is a list of solar loans you are likely to come across.
Secured Solar Loans
Several solar-energy system companies offer point-of-sale financing in the form of secured loans. Which, very much like car loans, means you need to pledge collateral.
In case you are unable to pay back the loan, your lender can repossess your solar panels. The advantage of secured loans is that they generally come with lower interest rates than unsecured loans.
Nevertheless, before applying for financing from a solar-installation company, make sure to compare rates, costs, and loan terms with other available loans.
R-PACE Solar Loans
A lot of loans require you to repay with personal funds. However, residential Property Assessed Clean Energy Program (R-PACE) loans let you attach your loan to your home and pay it back over ten to twenty years, along with your property tax payments.
Currently, R-PACE loans are available in particular parts of Florida, Missouri, and California.
If you sell your house, the new owner can take over loan payments if they want, and you will be off the hook as you don’t live there. Otherwise, the buyer may require you to pay off the entire loan before buying the house, complicating the whole process of selling your home.
Apart from this drawback, the R-PACE is an innovative program and one you indeed should look into!
Fannie Mae HomeStyle Energy
If you are refinancing or purchasing an energy-inefficient or older house, you can check out the Fannie Mae HomeStyle Energy mortgage. This mortgage allows you to finance energy-related upgrades as part of the mortgage.
For example, it lets you fund clean-energy improvements, such as getting a solar-energy system, at up to 15 percent of the house’s appraised value. This way, you won’t need to apply for a separate solar loan.
Impact of Credit Score on Solar Loans
When applying for a solar loan, the lender will look at your debt-to-income ratio and credit score. These figures help lenders determine if you have a history of paying off debt and can afford to take up more.
Solar costs are less than what you would have to pay your utility provider over the life of your solar array. Nevertheless, lenders are not concerned that solar is not an added expense, which is why many companies look at your credit score before qualifying you for a loan.
The exact impact of credit score on getting a solar loan depends on how you finance your panels. If you want to use a personal loan to pay for them, you will generally need a credit score of at least 550 to get approved. Borrowers with high credit scores tend to get the best repayment terms and rates.
Here is a list of some of the most popular solar panel loans you can get, along with their rates, minimum required credit score, and repayment terms.
| Lender | Fixed Rates | Min. Credit Score | Repayment Terms (Years) |
| Avant | 9.95% – 35.99% APR | 550 | 2, 3, 4, 5 |
| Axos Bank | 6.79% – 17.99% APR | 700 | 3, 4, 5, 6 |
| Best Egg | 4.99% – 35.99% APR | 600 | 2, 3, 4, 5 |
| Discover Personal Loans | 5.99% – 24.99% APR | 660 | 3, 4, 5, 6, 7 |
| LendingClub | 7.04% – 35.89% APR | 600 | 3,5 |
| LendingPoint | 9.99% – 35.99% APR | 580 | 2, 3, 4, 5 |
| LightStream | 2.49% – 19.99% APR | 660 | 2, 3, 4, 5, 6, 7 |
| Marcus by Goldman Sachs | 6.99% – 19.99% APR | 660 (Transunion FICO Score 9) | 3, 4, 5, 6 |
| PENFED Credit Union | 4.99% – 17.99% APR | 660 | 1, 2, 3, 4, 5 |
| Prosper | 6.95% – 35.99% APR | 640 | 3, 5 |
| Universal Credit | 8.93% – 35.93% APR | 560 | 3 to 5 years |
| Upgrade | 5.94% – 35.97% APR | 560 | 2, 3, 5, 6 |
| Upstart | 4.37% – 35.99% APR | 580 | 3 to 5 years |
Again, if you have excellent credit, you will be able to qualify for personal loans with incredibly competitive interest rates. A low-interest rate can save you a lot of money over the life of the loan—even a one percent difference will lead to significant savings.
Can You Get A Solar Loan With A Poor Credit Score?
In case you don’t have a good credit score, you should consider delaying your solar panel installation for a couple of months. Then, use the time to increase your credit score.
Some things you can do to improve your score include checking your credit report for errors, paying off high-interest debt (such as credit card debt), and building a positive payment history by paying your bills on time.
Nevertheless, if you have a bad credit score but wish to install solar panels right away, you should start looking into personal loans for bad credit. This will reduce your chances of getting rejected for a loan because of your credit score.
Make sure you can comfortably make the monthly payment on the loan you pick; otherwise, you will decrease your credit score even further.
Is A Solar Loan Worth It?
If you cannot afford to pay for a solar energy system in cash (like a lot of us), there are plenty of benefits to getting a solar loan so you can get it right away. For instance, you stand to save a lot of money by getting a solar loan.
One main reason is that when you purchase a solar energy system, you instantly increase your home’s value. A study conducted by Zillow revealed that, on average, solar panels increase a property’s value by 4.1%. So, for example, if your home is worth $500,000, solar panels can add $20,500 in value.
The overall savings and cash flow from a solar loan depend on how you set up your loan.
With that being said, a solar loan might not be suitable for everyone.
For instance, by the time you pay off your loan, it is highly likely that better, more cost-effective solar panels will be available.
If you can hold off and create an automatic savings plan for yourself, you may be able to get better-quality and more economical solar panels in a couple of years as the cost of new technology is rapidly decreasing.
Other Solar Energy Financing Options
If you cannot secure a solar loan right away, there are other options you can explore, including:
Solar Leases
Certain companies will lease solar panels and other required equipment. They will install it in your home just as if you had purchased it yourself. However, the company will retail the system’s ownership; you will basically be paying a fee to rent the equipment.
Power Purchase Agreements
In a power purchase agreement, a third-party company will come and install a solar energy system in your home. But instead of paying rent, you will have to pay for the electricity produced by the solar panel.
Last Few Words
Even though paying cash for purchases might be ideal, the massive cost of solar technology makes it impossible for many homeowners. In which case, solar leasing might be an option.
However, if you wish to own your solar-energy system a few years down the line and enjoy the various benefits available, a solar loan can be the best way to help you go green!
