Solar Loans – a growing choice in the solar industry
People looking to go solar have more options than ever before. While leases and power purchase agreements (PPAs) are the most popular options for homeowners, many are choosing to finance the purchase of a system through a solar loan. The popularity of solar loans is in part due to the Solar Investment Tax Credit (ITC), which gives the owner a tax credit of up to 30% of the cost of a solar power system. To meet this popularity, a number of new loans are available with terms from seven to 25 years and interest rates from 2.99% to 9.99%.
Because of the wide range of solar loans on the market, it is important to know your options before buying a solar system. You’ll want to make sure you understand what your loan entails, how the payments are structured and whether or not your system is covered by a performance warranty. Also, you’ll want to make sure that you’re eligible to take full advantage of the federal investment tax credit.
How most loans work
Most solar loans assume the customer will apply their 30% tax credit to the loan. The loans offer low initial monthly payments for 12 to 18 months, with the possibility of keeping the payments low once the tax credit is applied to the loan. If you choose not to apply the ITC to their loan, your initial monthly payment will increase significantly. And, in the case of some loans, the interest rate will also increase from a low initial rate to a high, almost credit card-like rate.
You should know that while you may initially save money on your energy costs, if you don’t apply the tax credit to the loan, you’ll likely pay much more to power your home.
It’s not just about the tax credit
Compared to leases and PPAs, the appeal of solar loans is that you can claim the federal tax credit.
While the promise of a 30% tax credit is appealing, when considering a solar loan you should be aware that not everyone can claim the full tax credit in the first year. If you sign a solar loan but cannot claim the full tax credit in the first year, the prepayment will still be due — potentially leaving you without the money to pay it.
Another consideration to keep in mind when taking a solar loan is that a warranty on the performance of the system may not be included. Without a warranty on system performance, you can’t be sure that your system is producing the power you need. And, potentially costly repairs to keep your system producing are your responsibility. Don’t expect your loan provider to take care of anything. They’ll probably point you to the initial installer, who may or may not be available to make any repairs years from now.
While most loans will allow you to pay off the loan early without penalty, many loans do not allow you to transfer the loan. So if you decide to sell your home, you should plan to payoff that solar loan. In fact, not paying off the loan could make it impossible for you to sell your home. Most loans include a security interest giving the creditor the ability to prevent the sale of your home while the loan is still in effect. An early payoff in order to sell your home means that you end up paying more for the power your system produced, and the next owner of the home will reap the benefits of the power you paid for.
So what should you do?
The most important thing you can do to ensure a solar system will work for you is to understand your options. Read every contract you’re presented and ask questions. Make sure you understand how the payments work, whether or not the system performance is warrantied and what happens if you decide to sell your home.
With tens of thousands of systems on homes everywhere from Hawaii to Massachusetts, Sunnova is one of the largest solar providers in the U.S. One of the things that we have learned is that while solar systems are extremely robust, they require monitoring and maintenance to ensure homeowners are getting the most out of their systems. That’s why, whether it’s a loan or a lease, we include a comprehensive performance warranty on our solar power systems.
When considering adding solar to your home, be sure to ask yourself what is important to you. If you are looking to lower your power bill and want as little involvement in the process as possible, a lease or PPA is probably the right choice for you. If you want to take advantage of the ITC and own the system, a loan is probably a great choice for you, just make sure you know what is in, or not in your loan agreement.
For more information on the solar options available to you, visit our Solar Plans page.