• When it comes to solar panel financing, the main question that homeowners have to ask themselves is whether they want to go with a solar lease or a solar loan. Both forms of financing are right for homeowners in different situations, and have their pros and cons, so homeowners should educate themselves on what both entail before making a decision. Let's take a look at the core differences between the two financing types, and the homeowners that each is right for.

    Solar Panel Leasing

    With solar panel leasing, the solar leasing companies own the panels that are installed on the home. The solar company installs the panels for nothing down, then the homeowner pays the leasing company a monthly fee for the use of the solar panels, and uses the power they produce. It’s essentially like the homeowner paying a power company that’s on their roof, for solar power that costs less than power from the utility.

    How Do Solar Leases Save Money?

    With a solar power lease, the leasing company charges the homeowner a fixed monthly payment for their solar power that is less than their power bill was before installing. So, because the solar panels are producing enough power to reduce or minimize the homeowner’s electric bill, and the monthly payment is less than the power bill was previously, it enables the homeowner to start saving money as soon as they are installed. This leads to immediate cash-flow from the savings, which can be great for homeowners who are sick of huge power bills.

    The other way solar leases can save a homeowner money is by protecting them from the inevitable electric rate hikes in the future. Because the solar panels are minimizing the homeowner's power bill, and are replacing the power the homeowner was previously buying from the power company, when the power company does raise rates, it will not affect the homeowner with solar panels installed. SDGE recently proposed an 11% rate hike in 2019, and a 28% rate hike over the next four years, so for those homeowners with panels, their savings will compound as those rate hikes hit.

    Who are Solar Leases for?

    Solar leases are primarily for those people who can’t take advantage of the 30% federal income tax credit, which requires the homeowner to own the panels. This includes retired people who don’t usually have a big tax bill, and people putting solar on a second home as the tax credit is only good for the primary home. In these cases, the leasing company, who owns the panels gets to take the tax credit and passes along the savings to the homeowner in the form of lower monthly payments.

    The Pros of a Solar Lease

    Production Guarantees

    One of the main benefits, if you’re looking to lease solar panels, is that the solar company guarantees production. As part of the lease agreement, the solar company guarantees that they will meet the power requirements every month, and if they don’t meet them, they will reimburse the homeowner for the power not produced and any electric bill charges they may have garnered as a result.

    At the beginning of the lease, the leasing company and homeowner agree on a stated monthly production number stated in kilowatts of electricity, and the guarantee states that the system will produce this much. If the homeowner consumes more than the agreed upon kW, then the homeowner is responsible for the difference. But any downtime the system may experience will be financially covered by the solar company, so the homeowner never has to worry about their power bill, even if their system isn’t producing.

    Maintenance and Repairs are Covered

    As a part of the production guarantees, under a solar lease, the solar company is required to maintain and upkeep the solar system during the term of the lease. So, if the solar goes down or is experiencing some kind of technical difficulties, the solar company is required to fix it as soon as possible, and reimburse the homeowner for any lost production during that time. These repairs can include the roof, workmanship, and product issues that may affect the system in any way.

    No Collateral Required

    As we stated earlier, one of the great incentives for homeowners to get solar leases is that there is no home equity involved in a solar lease. This is good for homeowners who may be planning another home improvement project which may require home equity. This can also benefit new homeowners who haven’t had the opportunity to build up a lot of equity.

    The Cons of a Solar Lease

    The Panels Belong to The Leasing Company

    At the end of the lease term, most commonly the homeowner has the option to renew the lease, buy the panels at a discounted price, or have the panels removed. If the homeowner had been making those same lease payments to the solar company to own the panels that whole time, they would have paid off the system much earlier, and would not have been paying the solar company or the power company for many years.

    The Homeowner is tied to the Lease

    The big disadvantage of a lease vs. a loan is that most leases are set up for a 20-year term and that means the homeowner is expected to make all the payments and pay them ALL the money. This compares to a loan where the homeowner can pay it off early and pay less, because they’re not paying interest on the rest of the payments.

    For example, take a lease that has a 20-year term:

    12 months X 20 years = 240 payments.

    If the payment is $100 per month X 240 payments = $24,000.

    That is what the homeowner will owe the leasing company for the use of the solar panels. If the homeowner sells their home after 120 payments ($12,000 worth) and wants to pay off the lease so they can sell the solar panels along with their house to the new home buyer, they will owe the leasing company the rest of the lease payments ($12,000) to get out of the lease. The homeowner won’t save any money by paying off the lease early as they would if they paid off a loan early.

    No Early Payment

    Most leases require that the homeowner is not allowed to exit the lease early unless they sell their house and have to pay it off for that reason. Otherwise, the homeowner is in default.

    Also, compared to a loan which can be borrowed in 5, 10 or 15-year increments, lease customers may have lower monthly payments but will pay more money out of pocket in the long run because they make many more payments (payments for 20 years vs. 5, 10 or 15 years).

    Can Complicate Home Selling

    While it is possible to transfer a solar lease to a home buyer or for the homeowner to close out the lease prior to the sale of a home, these arrangements can take time to make (30-90 days) so they must be handled prior to escrow. If a property goes into escrow prior to these details being worked out, complications can arise that make the transfer of the property difficult if not impossible and homes can fall out of escrow. Real estate agents that have had this type of bad experience may sometimes steer buyers away from homes with solar leases so this is something that should be anticipated and handled early.


  • Solar Panel Loans

    In reality, getting a solar power loan is not much different from getting a loan for any other large purchase, such as a car, boat, or motorhome. If the homeowner has a good credit rating and has paid off their loans in the past, they should have no problem.

    However, at the beginning of the solar boom, lenders were not so willing to lend money for solar panels. For one thing, lenders can’t repossess solar panels if the homeowner misses payments like they can with boats or cars. So solar panels were a bigger risk to the lender and they tended to charge much higher interest rates than with cars or boats which make the loans somewhat less affordable.

    Secondly, because solar panels were new, lenders were not sure what the normal operating lifespan would be for a solar panel system – unlike cars and boats – so lenders were only willing to extend loans for relatively short terms – 5 or 6 years, tops. This made the monthly loan payments actually higher than the utility bills instead of lower, because the loan was being paid off too quickly.

    One solution to this problem of bigger risk was for loans to be secured by collateral – in most cases, the homes themselves – and so the Home Equity Line of Credit or HELOC became the solar loan financing vehicle of choice for most homeowners over the past 15 years.

    The exception to this came during the recent economic recession in 2008-2010 when credit dried up and HELOCS were not available until home values once again stabilized and credit markets went back to normal. During that period of instability, solar leases were basically invented and came into their own as the only reasonable form of solar financing available for a short time.

    What’s happened in the meantime, however, is that solar panel systems have proved their long-term viability as a bankable asset with lifetimes of over 30 years and some panel manufacturers, such as SunPower, are now offering full 25-year warranties on all equipment. This has made lenders more comfortable with offering loan terms of 10-15 years even without the collateral of home equity, at reasonable interest rates for borrowers who have decent credit scores.

    How Do Solar Loans Save Money?

    A significant benefit about solar panel loans is that it allows the homeowner to take the money they were paying to the electric company every month – and use some portion of that payment to pay for a new home improvement (solar panels) that also supply his home with electricity; the rest of the money the homeowner gets to put in his pocket and he also gets a home that is worth money when he sells it because it now has this energy-producing appliance attached to it.

    The reason this is possible is due to a California state law called ‘solar net metering.’ This allows solar homeowners to get credit for how much solar energy they generate over the course of an entire year instead of day by day or month by month.

    If solar power has a weakness, it is that the homeowner can’t turn it up or down to match their needs; the amount of sunlight drives how much power is being produced. As a result, homeowners get more electricity than they need in the middle of the day (when the sun is overhead) and none at night when it’s dark. They get more than they need in the summer when days are long and not enough in the winter when days are short.

    However, solar net metering gives homeowners credit whenever they make more power than their home can use by letting them feed the extra energy into the grid and the same retail price that they would normally pay for it. In this way, they can ‘bank’ their extra renewable energy with the grid during the day and ‘withdraw’ the energy they need at night or during the winter.

    As long as solar owners produce about as much power as they consume over the course of the year, they can minimize their power bill (all except for small monthly service charges) and pay only the monthly loan payments for the solar loan.

    Since most loan payments are 20-50% less than the utility bill, this difference represents pure savings or cash flow to most solar owners.

    And eventually – after 5 or 10 or 15 years of loan payments – the homeowner will have paid off their loan, and the lending company will say “stop sending us money”. That’s something you’ll never hear from the utility company. “Stop sending us money” – can you imagine?!

    Who are Solar Loans for?

    Solar loans are the least expensive form of borrowing for homeowners who have good credit scores. Home equity loans are the cheapest type of solar loan since they have the lowest interest rates and the interest paid is actually tax deductible, just like mortgage interest. Other non-collateral solar loans have higher interest rates but may require no money down and may also be paid off early with no penalty which is not true for leases.

    The Pros of a Solar Loan

    The Federal Solar Tax Credit

    Homeowners who go solar with a loan are eligible for the 30% Federal Solar Tax Credit. That means that the homeowner can deduct 30% of their installation costs from their federal tax liability. Seeing as how the average solar installation is $25,000+, that can equal out to significant savings. If the homeowner doesn’t have enough tax liability the year they go solar, they can roll it over to the next year when they may owe more money.

    Long Term Savings, Protection From Rate Hikes

    As we have said, the primary benefit of going solar with a loan is that the homeowner owns the panels at the end of the loan payoff period. So once they’ve paid off the loan, they are no longer making payments to the power company or the solar company, and the savings will stack up for the life of their system. For the entirety of the loan, and the life of the system, the homeowner is also protected from electric rate hikes as they are minimizing their power bill, so the savings compound over time.

    Added Home Value

    According to recent studies, adding solar panels can add an average of $20,000 to home value, and for those homeowner looking to sell their home, having the system paid off can make the home much more attractive to potential buyers.

    The Cons of a Solar Loan

    After Warranty Expires, Homeowner Takes Over Maintenance

    The biggest downside of a solar loan compared to a solar lease is that when the solar warranty expires, the homeowner is responsible for maintenance and repairs of the solar system. While the industry standard is 10 years for manufacturer’s warranty, there are many solar panels makers out there who only offer 5 years, and others may not be in business in 10 or more years. That’s partly why choosing a dependable solar company that has been in business for many years is extremely important. Homeowners should be sure that their solar company is in business for the long run so that their warranty will be fulfilled for its promised term.

    Luckily, the SunPower solar warranty is 25 years, so most homeowners won’t have to worry about those repairs or maintenance for long after they install their system.

    It’s clear that solar leases and solar loans both have their strengths and weaknesses, and are appropriate for different types of homeowners in different situations. Homeowners should fully educate themselves on all the factors that affect their situation to determine the option best for them. A SunPower by Stellar Solar energy consultant can help homeowners decide what solar power financing option is best for their situation. Contact us today!

  • About the Author

    Michael Powers

