The Smart Way to Go Solar: Install Solar Panels On Credit
You may be interested in solar power and are convinced of its potential and savings. However, the cost is a big hurdle in having one installed at your home.
Unless you are ok with paying for everything with cash, you may be tempted to explore alternative financing or credit methods. Can you actually install solar panels on credit?
You can install solar panels on credit. This is usually available as financial plans from parties that can advance you some credit. You can explore options such as personal loans, home equity financing, FHA 203 (k) loans, or installer credit.
This article explores the question if you can actually get credit to install solar panels. Then we will look into the options to finance solar panels before discussing the pros and cons of each.
How Much Do Solar Panel Installations Cost Today?
On average, you may need to fork out between $16,000 to $36,000 to have a solar energy system installed at home before rebates and tax breaks are applied. The final cost may be influenced by many factors, such as the size, types of panels and inverters used, location, and if you install the panels yourself.
As much as a solar panel system is attractive to many as a way to save money and the earth, many may find the cost prohibitive. This is because it may cost you between $16,000 to $36,000 to install before any rebates and federal tax credit breaks are applied.
Even with federal solar tax credits, rebates, and all financial support applied, you may still be looking at the final cost of several thousand dollars for a typical 5-megawatt system.
Many factors, such as material, size, location, and installation, may affect the final fee. If you are looking for ways to bring the sticker price down, explore these options:
Materials: Not all solar energy systems are the same. For example, systems that use monocrystalline panels are more expensive than polycrystalline ones. On top of that, using string inverters should make it cheaper than microinverters.
Size: The more megawatt of power you need for your solar system to generate, the more panels, inverters, batteries, and brackets you will need. This will mean more material purchases and work hours, resulting in a higher final bill.
Location: Some states do have lower costs to install solar panels. The lower cost may come from the local government’s more solar power friendly policies. States such as Alaska, Kansas, and Kentucky are known for having one of the lowest installation costs nationwide.
Can You Install Solar Panels On Credit?
You can install solar panels on credit through various financial plans offered by lenders. These options may range from personal loans, home equity financing, FHA 203(k) loans, and financing plans from your solar installer. Value each option carefully to ensure you get the best offer for your needs.
Now that you know the cost of installing solar panels, you can decide if you want to pay for it in full or use credit facilities to fund the panels.
Fortunately, there are many credit or financing options that you can access to have solar panels installed.
Personal Loan
Personal loans are one possible form of financing available for you. It is an unsecured loan, meaning you do not need any collateral asset to qualify for the solar loan.
However, the amount of money you pay or the interest you need to pay to get the credit may depend on many factors. Some of them could be your income, credit score, or existing financial loans and commitments.
You can access credit of anywhere between $10,000 to $100,000, with an annual percentage rate (APR) of between 6% to 36%. The repayment period may be between two to seven years.
Pros of a Personal Loan
No Collateral: One of the best things about personal loans is that you do not need to put up any collateral to access the money. This means you do not need to own anything or risk having your assets taken away if you fail to service the loan.
Fast Line Of Credit: Personal loans are probably the fastest forms of credit you can access since the paperwork hurdle is lesser. In many cases, expect to get the full amount of money within the week after you submit an application.
Shorter Repayment: Compared to other credit lines, such as home equity financing, or FHA 203(k) loans, a personal loan would have a shorter repayment period. This means you can get out of debt quicker and pay the loan for peace of mind.
Cons of a Personal Loan
Higher Interest: One of the downsides of using a personal loan to fund your solar panels is the higher interest rate. This is because personal loans are unsecured, meaning you do not need to put up any collateral. This is a riskier loan for the lender to advance to you, which results in a higher interest rate.
No Tax Benefits: If you use other forms of credit, such as home equity, you may be eligible for some tax incentive breaks. This is because home loans generally qualify for that. With personal loans, you do not get such benefits, so your cost to install the panels may be much higher.
You May Not Get The Full Amount: On top of the interest, many lenders usually charge a fee to process the loan. Deductions may be given names such as processing or originator fee and may be between 1% to as much as 10%.
Home Equity Financing
Home equity financing sounds difficult to understand, but the concept is easy. Suppose you have a $200,000 home loan and have paid up half of it. In this case, you actually have $100,000 equity in the home.
Banks would happily help to advance some credit to you based on the amount of equity you have. In many cases, you may be eligible to borrow up to 80% of your home’s value minus the amount you still owe.
To take the example from above, you could apply for a home equity loan of over $80,000. APRs should be within the single digit, and repayment may be between 15 to 20 years.
Pros of Home Equity Financing
Lower Interest Rate: Home equity financing is a low-risk loan to most lenders. You have collateral, and they can see your track record in servicing the loan. As a result, they are willing to offer lower interest rates to lend you the money, compared to personal loans or credit cards.
Tax Benefits: You can often use a home equity loan to qualify for some tax benefits. Check with your local and state government to see what benefits are available to you.
Cons of Home Equity Financing
Requires Collateral: To qualify for home equity financing, you first need to have a home. This means you need to put up collateral for the loan. This may be a little riskier on your end since you may lose the house if you fail to service the loan properly.
Longer Repayment Terms: Home equity financing usually stretches longer, and not all lenders are happy to have to settle the sum in advance. As a result, perform your calculations and see if your savings from your solar panels can offset the total interest sum paid for the loan.
FHA 203(k) loan
The FHA (Federal Housing Administration) does have a provision called the 203(k). It is a government-insured loan program you can apply for and use for home improvement projects.
The loan does have some limitations. You cannot use it to build vanity projects such as saunas or swimming pools, but solar panel installations are allowed. You generally either create a new mortgage or have your current mortgage refinanced.
The APRs are low, usually around 3% to 6%, with a long repayment period of 15 to 30 years.
Pros of a FHA 203(k) Loan
Low-Interest Rate: FHA 203(k) loan has one of the lowest interest rates since it is a government-sponsored program. It will definitely be lower than other unsecured credits, such as personal loans or credit cards.
Easier To Qualify: The FHA 203(k) has a softer borrowing requirement than many other credit options. In fact, you may be able to qualify for it even if your credit score is 500.
Governmental Support: The FHA 203(k) is a program from the Federal Housing Administration to support homeowners and contribute to the local economy by providing jobs to contractors and tradespeople. As a result, it may be easier for you to qualify.
Cons of a FHA 203(k) Loan
You Do Not Get The Money: One issue with the FHA 203(k) is that once the loan is approved, you do not get the sum of money. Instead, the sum is credited to the contractor or tradesman who performed the solar installation. You may not like this concept.
You Need A Contractor To Start Quickly: One of the requirements to qualify for the loan is to find someone who can start installing your solar panels within 30 days. This is because FHA pays the contractor directly. This may be a requirement you cannot meet.
You Must Buy Mortgage Insurance: To take up the FHA203(k), you must purchase mortgage insurance, which may be something you do not like since you will have to service the insurance.
Installer Credit
There is also another popular financing option, which you may check directly with the solar installer. Many energy companies or solar installers offer financing plans to help you install solar panels, which you can leverage.
The payment period may take between 10 to 25 years. The interest rate or other terms may be subject to the installer itself.
Pros of Installer Credit
Faster And Easier: With installer financing, there are basically only two parties involved in the transaction: you and the installer. There are no banks, FHA, or other parties that may complicate and slow down the installation process.
Low Rates: Energy and solar companies may be keen to help you install solar panels. This is because some government programs and policies either incentivize or pressure them to install more solar panels. As a result, they may offer you low rates.
Negotiable In Many Ways: Since the whole process involves only you and the installer, feel free to negotiate with them in ways you see fit. Want free installation, and sell back 100% of the energy generated, so you get your panels for free? Or want free lawnmowers with the installations? Your creativity is your limit here.
Cons of Installer Credit
You May Not Get Full Fee: Your installer may charge a fee, which may result in you not getting the full sum of money or full value equivalent to the amount you loaned.
The Devil May Be In The Details: Since the agreement is between you and the installer, the loan details may be harder to agree on. For example, an installer may be happy to offer you a very low-interest rate. But then, they try to save their cost by using polycrystalline panels and a shorter warranty period.
Final Thoughts
Many solar financing options for installing solar panels on credit are available, such as personal loans, home equity financing, FHA 203(k) loans, or installer credits.
The key is to do your research and perform deep calculations to ensure you get the best deal and savings from your loans.
It may also help you look around for any additional savings from tax benefits, matching grants, or rebates from your local or state governments. This is because some of these benefits can only be available on certain credit plans.
