How to Finance Your Solar Power System: A Comprehensive Guide

Friday, January 19, 2024

Investing in solar power can be a game-changer for your home, significantly reducing your electricity bills and contributing to a sustainable future. While the environmental benefits are evident, the financial commitment required for a solar panel installation can be a daunting obstacle. 

A quality solar system, such as a 10 kW installation, can easily surpass $8,000 in costs. When pursuing a greener future, solar financing becomes a crucial consideration. In this blog, we explore six common ways of financing home solar panels, guiding you through multiple options for a solar panel loan. 

The best options to get solar finance are as follows:

1. Green Personal Loans

Green personal loans are tailored for environmentally friendly purchases, including solar power systems. These loans consider individual circumstances and often offer lower interest rates compared to standard personal loans. However, it is crucial to shop around and be wary of additional fees such as application, establishment, monthly fees, and early repayment fees. 

Who is this best for? This type of solar loan is suitable for those with good credit who can't secure a lower rate through a mortgage refinance.

Tip: Discuss with your finance provider to align estimated solar savings with a loan term that matches your repayment capacity.

2. Cash

For those debt-free with available cash, paying for a solar power system upfront can be a wise investment. Solar systems typically offer tax-free returns higher than traditional investments. Analyse your energy consumption patterns to estimate the return on investment, considering that a system can pay for itself in a few years.

Who should consider paying cash? This manner of solar system financing is ideal for anyone with savings, especially cashed-up, debt-free retirees seeking a higher return on their investment without taking significant risks.

Tip: When comparing solar power with other investments, consider the tax savings on electricity bills.

3. Add to Your Home Mortgage

By adding the cost of the solar power system to your home mortgage, you may benefit from lower interest rates. Consider refinancing your mortgage or obtaining a top-up loan for solar panels, which can result in lower overall costs compared to a short-term solar loan. Be cautious of application fees and the impact on lender's mortgage insurance.

Who is this best for? Homeowners without sufficient cash on hand, especially those eligible for a mortgage refinance green loan with a lower interest rate than their home loan.

Tip: Commit to higher repayments using your solar energy savings to accelerate your mortgage paydown.

4. Rent to Own/Solar Leasing

This solar financing option allows you to lease a solar power system with the leasing company, retaining ownership until the full payment is made. While monthly fees might seem lower than your current electricity bill, carefully examine the total cost and the implied interest rate. Remember that the contract can't be transferred to a new property owner if you decide to sell your house.

Who is this best for? Larger solar systems are typically best for commercial premises.

Tip: Always compare the total cost of each financing option, as long-term solar loan repayments may be comparable to lease payments.

5. Power Purchase Agreements (PPAs)

Under a PPA, a solar company installs the system at no upfront cost, and you pay for the generated electricity at a discounted rate compared to grid electricity. However, be cautious about the contractual obligation to buy a minimum amount of electricity, potentially resulting in payments for energy you don't need.

Who is PPA best for? This route of solar panel finance is recommended for larger solar power systems on commercial premises.

Tip: If you run a home business with significant daytime electricity consumption, a PPA may be suitable, but carefully assess your consumption patterns.

6. Personal Loan

For those who can't borrow more on their home mortgage or desire a higher interest rate to repay the loan faster, personal loans provide flexibility. Some lenders offer better-than-market interest rates based on the loan purpose and your financial situation.

Who is a personal loan best for? Those with good credit-seeking flexibility, competitive interest rates, and the negotiating power of a cash buyer.

Tip: Explore options beyond your bank, as specialised loans may offer more favourable terms. When pursuing interest-free solar loans, be cautious of the terms associated with it. Consider special rates offered by institutions for solar-related financing.

The Last Word

Choosing the right financing for home solar panels is crucial for maximising savings and minimising costs. Evaluate your financial situation, energy consumption patterns, and the terms of each solar finance method to make an informed decision that aligns with your goals for a sustainable and cost-effective energy solution. With the right financing, your solar power system can not only save you money but also contribute to a greener and more sustainable future.

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