Solar financing guide: What are the options and which one is best for you?

There are three options for those financing solar panels and associated equipment: cash, loan, and lease. We’ll take you through each option below so you can see which might be most suited to you.

Cash purchase

This option is for those who have the capital to purchase the solar system up front, in one payment.

A cash purchase is the best option for people who have the money available at the time of purchase, as it means that they’ll avoid lengthy loan applications and interest rates.

While this can be a significant chunk of money for a lot of people, it’s the quickest way to settle, and it helps deliver the fastest return on investment through energy savings and tax incentives.

Pros

• You’re settled on the day of purchase, with no further payments to be made.
• You’ll have immediate ownership of the parts you’ve bought.
• There’s a quicker return on investment through energy savings.
• You can capitalize on tax incentives for cash payments.
• You immediately increase the resale value of your residential property.

Cons

• Not suitable or accessible for those who don’t have sufficient funds.
• You are responsible for the cost of maintenance and repairs independently.
• It can be an intimidating amount of money to part with in one go.

Solar loan

Solar loans are designed specifically to provide financing for solar PV systems and equipment. This option is for people who want to spread the cost of their investment over the course of a few months or years.

Solar loans are a good option for those with good credit and who don’t wish to purchase the solar panels outright. However, solar loan applications can be lengthy and they require applicants to have a good credit history or risk being denied.

The goal is to pay off the loan within the loan terms so that by the time everything is paid up, the customer will have full ownership over the solar installation.

There are several loan platforms that supply loans specifically for solar installations. These are accredited and fully licensed companies that are regulated by the appropriate governing bodies.

Popular solar financing companies include Loanpal, Mosaic, Sunlight Financial, Solarinsure, and Dividend Finance. These companies have their own approved vendor list (AVL) – a list of approved solar supplier partners. This list includes Hoymiles, which means that users can apply for solar loans on these platforms if they buy Hoymiles products.

Pros

• You’ll have immediate access to the system even though you’re making monthly payments on the loan.
• There’s no large upfront payment.
• You may be able to access flexible loan terms, with repayment terms that suit you.
• Interest rates should be fixed for a given period of time.

Cons

• Interest may increase after the fixed term has ended.
• Taking on a loan is a big responsibility and can impact your financial freedom and flexibility.
• Some customers may not have the option to access loans due to bad credit.
• There’s always a risk of defaulted payments, which can put customers in tricky financial situations.

Solar lease or power purchase agreement

While cash payment means owning your solar system installation outright, solar leasing means you can enjoy the benefits of solar energy without the need for a large initial payment.

Similar to renting or leasing a property or car, the solar leasing option is where a third-party company owns and maintains the solar installation on your property, for which you pay monthly or yearly installments.

This option doesn’t typically result in the ownership of the installation, and you’ll be making payments for as long as you’re generating energy with the solar panels.

Power purchase agreements (PPAs) follow a similar structure but differ slightly in that instead of leasing the equipment you agree to buy the energy generated by the panels at a lower rate than you would pay for grid energy.

A PPA is a long-term contract between an energy provider and a customer. In the case of solar energy, the “customer” is the property owner or tenant who buys the energy produced by the solar panels on their property from the provider at a reduced rate.

The solar panels may be installed onto the property during the tenancy or they may be there even before the customer moves in. However, the deal always remains the same: The customer buys solar-powered energy from the installation company, instead of paying to rent the equipment or pay off a loan until full ownership has been achieved.

Pros

• In both cases, the third-party company is in charge of maintaining and repairing the equipment.
• There’s a lower upfront cost associated with leasing parts.
• You can always predict your monthly or yearly costs as they’re not likely to change.
• It’s an easy and simple process with little paperwork compared to loan options.

Cons

• You will never own your solar PV system.
• No ownership also means no resale appreciation on your property.
• This option also requires you to have good credit.
• You are also dependent on the provider for maintenance and repairs.