Go Solar with Leases, or Loans?

You want to take control of your spending, but home planning can be difficult. And if you’re thinking of going solar, the options on financing are endless. What do they mean? What am I subject to paying every month? Will the payment change? We’re here to answer all of your small-to-big financing questions about solar leasing vs. taking out a solar loan.

First, let’s define what each name means. What mostly defines their differences is the ownership. By agreeing to a solar lease, you’re renting the solar panel and do not have ownership rights. If you decide to take out a solar loan, you’re paying off a loan that you used to buy ownership. Each has their own benefit, and it’s up to you to decide which is best for your situation. Let’s break down each and talk about the options.

Leasing with a Fixed Monthly Lease/ With a PPA

A new trend in going solar is taking out solar leases - with or without a PPA (Power Purchase Agreement). This process involves a financer who finances the installation of solar panels on a home or business, and then is owed by the home/business owner. But here’s the catch - instead of paying a fixed rate - you’d pay a fixed monthly amount only for the electricity that the solar panels produce. In other words, your bill changes per month based on the energy you use. 

The downside of this package is that you’ll most likely have a payment that starts with a low rate increase, and slowly rises. For instance, if you started out with a PPA rate of $0.15/kWh and a rise of 2%, by the fifth year, your rate is $0.1612. Your rate will rise every year. Another con is that because the payment fluctuates based on how much energy you use every month, some months you’ll be essentially back at square one with the high energy bills, only this time it’s coming from your lease payment. Or even worse, you could end up paying more than you paid with regular electricity bills. 

Taking out a Solar Loan

Taking out a loan means being able to finance your entire system, and owning everything upfront. You still get credit for things like tax rebates, tax credits, and whatever else that’s applicable. You pay off the loan over time. There are different types of solar loans that break down essentially into two different categories: secured, and unsecured. The difference is their name - but let’s define them by their pros and cons.

Unsecured Loan 

An unsecured loan is similar to the personal loans you take out from the bank. Different from a government loan, an unsecured loan has a higher interest rate, and no collateral. There’s higher monthly payments, but they are very quick and easy to apply for.

Secured Loan 

Essentially, a secured loan is like a home equity loan. Secured loans take longer to apply for, because the government has to come and inspect your property, give an estimate, and there’s more paperwork involved which then needs to get processed. But ultimately in the long run, you’d be benefiting extremely low interest rates and lower monthly payments than an unsecured loan. They range from 7-20 years to pay off, and the interest rates can range anywhere from 3.5-5.5 percent. Thankfully, these interest rates are tax deductible.

Which one is right for me? 

It really depends on your situation and finances. To summarize the pros and cons listed out, it’s apparent that taking out a loan to own the solar system is the smart choice in the long run. Of course, if you don’t need to take out a loan, the more power to you! But if you’re strapped on cash, there are several financiers who have made special deals just for solar panel buyers, making it easy to make the switch and become the owner of the system. This benefits you in the long run; you benefit from the tax credits, rebates, etc. - and you don’t have to worry about the rising rates that come with leases. You’re paying off the loan while still putting money back in your wallet.