How you finance your solar panels affects your initial investment and long-term savings. Compare the pros and cons of each option in our in-depth guide.
Quality solar panels are expensive, but financing can make them more affordable. Solar installers typically offer several financing options, allowing homeowners to pick the one that best suits their budget. We at the Guides Home Team have broken down each type, including their benefits and impact on your long-term savings.
How Much Do Solar Panels Cost?
The cost of solar panels varies throughout the country due to local pricing and availability. According to the Solar Energy Industries Association (SEIA), the national average for solar panels ranges between $16,000 and $21,000 for a 6-kilowatt (kW) system.Your selected solar company, panel type and energy needs all impact your total price. Below is a breakdown of average solar panel cost by state.*
State | Average Cost Per Watt | Estimated 6 kW System Cost |
---|---|---|
Alabama | $2.45 | $14,700 |
Alaska | $2.41 | $14,460 |
Arizona | $2.61 | $15,660 |
Arkansas | $2.54 | $15,240 |
California | $2.73 | $16,380 |
Colorado | $2.69 | $16,140 |
Connecticut | $2.80 | $16,800 |
Delaware | $2.58 | $15,480 |
Washington, D.C. | $3.16 | $18,960 |
Florida | $2.53 | $15,180 |
Georgia | $2.55 | $15,300 |
Hawaii | $2.67 | $16,020 |
Idaho | $2.60 | $15,600 |
Illinois | $2.73 | $16,380 |
Indiana | $2.68 | $16,080 |
Iowa | $2.77 | $16,620 |
Kansas | $2.59 | $15,540 |
Kentucky | $2.34 | $14,040 |
Louisiana | $2.57 | $15,420 |
Maine | $2.83 | $16,980 |
Maryland | $2.77 | $16,620 |
Massachusetts | $2.94 | $17,640 |
Michigan | $2.81 | $16,860 |
Minnesota | $2.84 | $17,040 |
Mississippi | $2.64 | $15,840 |
Missouri | $2.59 | $15,540 |
Montana | $2.54 | $15,240 |
Nebraska | $2.83 | $16,980 |
Nevada | $2.52 | $15,120 |
New Hampshire | $2.91 | $17,460 |
New Jersey | $2.77 | $16,620 |
New Mexico | $2.68 | $16,080 |
New York | $2.95 | $17,700 |
North Carolina | $2.54 | $15,240 |
North Dakota | $2.42 | $14,520 |
Ohio | $2.56 | $15,360 |
Oklahoma | $2.62 | $15,720 |
Oregon | $2.60 | $15,600 |
Pennsylvania | $2.55 | $15,300 |
Rhode Island | $2.84 | $17,040 |
South Carolina | $2.72 | $16,320 |
South Dakota | $2.39 | $14,340 |
Tennessee | $2.49 | $14,940 |
Texas | $2.69 | $16,140 |
Utah | $2.68 | $16,080 |
Vermont | $2.87 | $17,220 |
Virginia | $2.75 | $16,500 |
Washington | $2.69 | $16,140 |
West Virginia | $2.64 | $15,840 |
Wisconsin | $2.60 | $15,600 |
Wyoming | $2.57 | $15,420 |
*Based on cost data from EcoWatch.
Solar Panel Financing Options
Most solar panel companies offer two or more financing options. Each option affects your installation total, solar incentive eligibility and return on investment (ROI). Here’s a breakdown of the typical solar financing options available through solar providers.
Cash Purchases
A cash purchase is the most straightforward payment option. You pay for your solar system up-front, eliminating interest rates, loan fees or credit score checks. Considering solar panels last 25 to 35 years, making a cash payment is equivalent to prepaying for your solar energy. The downside is that you need a large amount of cash, ranging as high as $18,000 to $25,000.
Thanks to this higher initial investment, your payback period will start sooner. The payback period is the time it takes for your energy savings to equal the amount you invested in your solar panel system. The average payback period is six to 10 years, but it varies from system to system.
A cash purchase makes you the legal owner of your solar system. Full ownership qualifies you for solar incentives and credits that offset your system costs. For example, the federal solar tax credit provides first-time solar owners with a tax reduction equal to 30% of their installation costs. Your state or municipality may offer additional rebates and incentives.
Solar Loans
A solar loan is a great option if making such a large up-front payment isn’t possible. Solar loans allow homeowners to make small monthly payments over a long period. You’ll need a good credit score to qualify for the best rates. Excellent credit scores could qualify you for little to no money down. Like a cash purchase, a solar loan makes you the owner of your system and qualifies you for incentives and rebates.
Solar panel loans are offered through third-party loan providers and sometimes through the provider itself. Below is a list of the most common types of loan options:
- Unsecured loans: These loans allow you to borrow from a lender without collateral. They offer quick approvals and may not require any money down. Personal loans fall into this category.
- Secured loans: These loans are backed by collateral that can be sold off if you’re unable to make the payments. These loans usually have longer terms but lower interest rates. In addition, interest rates on secured loans are tax deductible. Home equity loans and home equity lines of credit are examples of secured loans.
It’s important to review the loan terms, including the origination fee, repayment schedule and annual percentage rate (APR). Most loans have fixed, low-interest rates to keep payments as consistent as possible. The APR will add to your total installation cost and extend your payback period. Find loans with the lowest rates to keep your loan amount within a reasonable total.
Solar Leases
Solar leases are an alternative if a cash purchase or solar loan isn’t an option. This involves renting your solar power system through a solar provider. You pay a fixed rate to use the solar panels each month. A typical lease lasts between 10 and 25 years. During this time, the solar company is responsible for the upkeep of your system. Most companies include warranty coverage with regular servicing, maintenance and power production guarantees. A power production clause guarantees your system will produce a specific output, or the company is responsible for repairing or replacing your panels.
The downside is that leases don’t grant you ownership of the system, disqualifying you from cost-saving solar incentives. Solar leases can also pose a problem if you plan to sell your home. Some companies allow you to move a leased system to a new home if it’s within the coverage area.
If you don’t plan to transfer your services, you’ll need to either buy out the rest of your solar lease or have the new buyer take it over. Depending on the time left on your lease, you’ll have to make a substantial cash payment to end it. If you decide to transfer to someone else, they’ll need to meet the criteria for the lease, which may include a credit check.
Power Purchase Agreements (PPAs)
Power purchase agreements (PPAs) are another form of solar panel leasing. Instead of paying a fixed “rent” for the panels each, you only pay for the power you use. You’ll pay per kilowatt-hour (kWh) used each month and your bill will fluctuate. These payments are significantly less than monthly loan or lease payments and don’t include repayment terms. These agreements also usually have the longest contracts, lasting between 20 and 25 years.
Unfortunately, PPAs are only available in some states. According to the Database of State Incentives for Renewables and Efficiency (DSIRE), less than 30 states allow PPAs. Even authorized states may impose restrictions on the PPA terms, including restrictions on the size of your solar system. PPAs disqualify you from solar credits and incentives and provide the least financial benefits.
How To Compare Solar Financing Options
Choosing the best financing option can be overwhelming, as many of them lock you into a long-term contract. We’ll compare the pros and cons of each option below.
Pros and Cons of Cash Purchases
+ Qualifies you for solar incentives, rebates and credits
+ Has the highest ROI
+ Doesn’t require interest rates, a credit score check or down payment
– Makes you responsible for all maintenance outside of warranty coverage
– Requires a significant cash payment
A cash purchase is right for you if:
- You have enough cash liquidity to pay for your system outright
- You want to maximize your long-term savings
- You want to take advantage of solar incentives and credits
Recommended Provider for Cash Purchases
SunPower offers some of the most efficient solar systems available. Investing in high-performing solar equipment will generate more power for your home, helping you save on your utility bills. SunPower includes a 25-year comprehensive warranty that covers product defects, servicing and panel performance.
To learn more: SunPower Solar review
Pros and Cons of Solar Loans
+ Requires $0 to little money up-front
+ Qualifies you for solar incentives, rebates and credits
+ Adds property value to your home
– Increases your total investment due to interest rates
– Requires a credit check for approval
A solar loan is right for you if:
- You prefer not to make a large up-front payment
- You still want to qualify for additional solar incentives
- You want to pay for your clean energy over a longer period
Recommended Provider for Solar Loans
Blue Raven Solar has its own in-house financing program, BluePower Plus+, which provides 18 months of free solar energy to qualifying customers. Customers then move to a monthly payment program with fixed payments and low monthly interest rates for the next five years.
To learn more: Blue Raven Solar review
Pros and Cons of Solar Leases
+ Minimal financial investment
+ No commitment to own your system
+ System maintenance covered by the solar provider
– Disqualifies you from solar incentives or rebates
– Transferring ownership can be tricky
A solar lease is right for you if:
- You don’t want to be responsible for the upkeep of your solar system
- You want the lowest investment option available
- You don’t care about benefiting from solar incentives
Recommended Provider for Solar Lease
Sunrun offers full amount and monthly solar leasing options. The full amount lease allows you to prepay for your solar service for the next 25 years. The monthly lease requires $0 to little down and involves monthly payments. Both leasing options include free system monitoring, maintenance and insurance protection for panel theft or damage.
To learn more: Sunrun Solar review
Pros and Cons of PPAs
+ Monthly payments for energy usage are lower than fixed rates
+ No credit checks required for qualification
+ Solar provider responsible for system upkeep
– Least financial benefits
– Minimum 20-year agreements required
A PPA is right for you if:
- You only want to pay for your energy usage
- You don’t want to make any down payments for service
- You’re not ready to own a solar system
Recommended Provider for PPAs
Momentum Solar offers a PPA option for customers looking for minimal financial commitments. The company provides warranty coverage for solar panels and workmanship along with low monthly payments.
To learn more: Momentum Solar review
Solar Tax Credits and Rebates
Solar tax credits and incentives are an excellent way to make going solar more affordable. These incentives are offered to qualifying solar customers on the federal, state and local levels. They boost your ROI and accelerate your payback period. You must own your solar system or have a solar loan to qualify for these savings.
As mentioned earlier, the federal tax credit gives homeowners 30% of their installation costs back. This credit applies to your federal tax liability at tax time. This is not a tax refund; it simply reduces the taxes you owe. If the amount you owe is less than the credit, the remaining balance can be rolled over to the next year.
Some states also offer state tax credits. Similar to the federal tax credit, these apply toward your tax liability but on the state level. Customers may also receive additional credits and rebates from local municipalities, city-based incentives, and local utility companies. For a full list of available solar incentives in your area, check the DSIRE website.
The Bottom Line: Which Solar Payment Option Is Right for You?
Whether you’re investing in high-end or cheap solar panels, your selected financing option plays a major role in your total cost. Take the time to consider your budget and long-term financial plans.
If you’re looking for maximum savings and the highest ROI, consider a cash payment with SunPower. You’ll get the best energy efficiency and highest potential savings. Homeowners interested in a solar loan should consider Blue Raven Solar, which offers 18 months of free solar energy plus a low, fixed monthly rate. If you’re not ready to own a system, consider a lease from Sunrun to receive comprehensive system care and maintenance. Choose Momentum Solar if you only want to pay for the energy you use and don’t want to be responsible for the system.
We recommend comparing at least three providers to find the best lease or loan.
Frequently Asked Questions About Solar Panel Financing
Paying cash for your solar panels is the best option to maximize savings. However, it requires a substantial initial payment. Financing solar panels offers smaller payments but results in longer contracts and higher total costs over time.
Solar panel financing makes purchasing a solar panel system more affordable. Homeowners benefit from improved energy savings with reasonable monthly payments. Some financing options, such as leases and PPAs, allow homeowners to benefit from solar panels without being legally responsible for the panels.
Yes. Various financial institutions, such as local and national banks, credit unions and specialty financing companies, offer solar loans to homeowners. It’s important to review their terms, interest rates and APR to find the best options.