In 2012, over 83,000 U.S. homeowners installed solar panel systems – a 55% increase over 2011. The growing popularity of solar power has been aided by the availability of financing solutions such as solar leases and power purchase agreements (PPAs) which have allowed homeowners to install solar panels with either no money down or with only a small down payment. Now, easy availability of solar loans promises to make solar power even more attractive to an even larger number of homeowners, pushing solar power further and further into the mainstream.
This new financing method makes it much easier for consumers to make the switch to solar power. The introduction of solar loans is great news as it provides consumers with more choices and more flexibility in meeting their own particular financial needs. A number of banks (e.g., Admirals, GE, Enerbank), specialty lenders and solar panel manufacturers have begun to realize that providing solar loans is a low-risk growth opportunity for them. As a result, they’re starting to roll out loans specifically aimed at homeowners looking to install solar power systems. Since EnergySage is built on the premise that higher levels of choice ultimately benefit the consumer, we’re extremely excited to see these solar loans coming onto the market.
One of the easiest ways to install solar power has been to opt for a 20-year solar lease or PPA as these options require either no-money down or only a small down payment. Although easy, these options provide financial benefits on the lower end of the scale. If you want to maximize the financial benefits of installing solar power, owning your system is generally the way to go. Previously, homeowners looking to maximize their ROI only had two options: purchase the system outright or go for a prepaid lease. Unfortunately, both of these options require large upfront investments. If you didn’t have the cash on hand to make the upfront investment needed, you would need to finance your purchase or prepaid lease with a home equity loan (costing 2-3% per year at current rates). One drawback to these loans is that they require the homeowner to pledge their house as collateral.
So, how do you know if a solar loan is right for you? When evaluating the benefits of borrowing money, the rule of thumb is as long as the return on investment exceeds the cost of the loan, the loan makes good financial sense. With this in mind, homeowners will want to consider using solar loans to finance the purchase of their solar energy system. These loans allow homeowners to borrow money at approximately 5-6% for the gross value of the system with no money down and they still allow them to benefit from the 30% Federal Investment Tax Credit. The loan terms range from 7-10 years but, if they want to, homeowners are able to repay the principle early without incurring any prepayment penalties. Unlike home equity loans, qualifying for solar loans is based on your personal credit score, so there’s no need to use your house as collateral. In terms of the return on your investment, a typical solar panel system generally offers an annual rate of return of 10%-25%. Where you will fall within this range is dependent on the savings your system provides as well as whether or not your state has an SREC program that allows you to generate revenue related to your solar energy production.
In general, to ensure that the monthly savings exceed the loan payments, homeowners earning a 10% return should look at loans with 10 year terms, those earning a 15% return can go with 7 year loans and those with 20% returns can go with 5 year loans. Most solar panel systems will have a useful life of 25+ years so in the years remaining after your loan is repaid, the electricity your system generates is free and the savings are all yours.
All of the factors discussed above make solar loans an extremely attractive financial option. As solar installation prices continue to go down, they become even more attractive. By making it even easier for homeowners to finance solar panel systems, solar loans have the power to significantly fuel the trend toward broader adoption of solar power. In that same vein, EnergySage also is doing its part to make shopping for solar panels as easy as possible. The EnergySage Solar Marketplace is a quick and easy way for you not only to solicit competitive quotes from multiple installers, but also to evaluate your savings and cash flows for solar leases and PPAs and solar loans and to determine the annual return on investment your solar panels will generate. Let us help you get started.