Finance or Pay Cash for Solar: Which Option is Best for You?

When it comes to going solar, one of the biggest questions is how to pay for it. Cash or financing? It’s a decision that affects long-term savings, monthly budgets, and even how quickly you see a return on your investment. Let’s break it down.

Should You Finance or Pay Cash for Solar Panels?

There’s no one-size-fits-all answer. Your financial situation, goals, and available incentives all play a role. If you’ve got the cash and want to maximize long-term savings, buying outright is the way to go. Cash purchases typically yield the highest return on investment over the system’s lifetime.

But financing makes solar installation accessible to more homeowners. A study by the National Renewable Energy Laboratory (NREL) titled, ‘Low- and Moderate-Income Community Solar Policies’ found that financing options have been key to expanding solar adoption, especially among middle-income households. 

So, the real question is: what works best for you?

Key considerations:

• Do you have enough cash on hand? (Without draining your emergency fund?)
• Are you prioritizing long-term savings? (Cash gets you the most bang for your buck.)
• Can you comfortably afford monthly loan payments?
• Would you rather invest your cash elsewhere?

The Pros and Cons of Paying Cash for Solar

Paying cash is the simplest, most cost-effective way to go solar. No loan applications. No interest payments. No monthly bills to worry about. Just clean energy and long-term savings.

Pros:

• Maximum savings: No interest, lower overall cost.
• Immediate ownership: The system is yours from day one.
• No loan paperwork or credit checks.
• Fully owned systems can increase home value.

Cons:

• Requires a significant upfront investment.
• Ties up capital that could be used elsewhere.
• Slower break-even compared to some financing options.

The average break-even point for cash buyers is 7-8 years. Compare that to 9-11 years for financed systems, and the long-term advantage is clear.

Key Takeaways:

• Cash purchase maximizes long-term savings and avoids interest but requires a large upfront investment.
• Solar loans provide ownership benefits with manageable monthly payments but increase overall costs due to interest.
• Leases & PPAs reduce upfront costs and maintenance responsibilities but come with long-term contracts and lower savings.
• The best option depends on your financial goals: maximize savings (cash), spread costs over time (loan), or go solar with no upfront cost (PPA/Lease).

The Pros and Cons of Financing Solar Panels

Financing removes the upfront cost barrier and lets homeowners go solar immediately. But, of course, loans come with interest—meaning you’ll pay more over time.

Pros:

• Little to no upfront cost.
• Immediate energy savings (sometimes even from month one).
• Eligible for tax credits and incentives.
• Keeps cash-free for other investments.

Cons:

• Interest and fees make the system more expensive over time.
• Longer payback period compared to cash purchases.
• Some loans have origination fees or prepayment penalties.
• Credit score impacts loan terms and interest rates.

Types of Solar Financing Options

If you’re thinking about going solar, you’ve got choices when it comes to financing. Do you want to own the system outright? Or would you rather let someone else handle the maintenance while you simply pay for the power? 

Each option has its pros and cons, and the right one depends on your financial situation, long-term goals, and how much (or little) responsibility you want.

Let’s break it down.

• Solar Loans – Designed specifically for solar installations, often offered by installers or credit unions.
• Home Equity Loans/HELOCs – Low-interest options that use home equity as collateral.
• Power Purchase Agreements (PPAs) – A third party owns the system; you pay for the electricity it generates.
• Solar Leases – Similar to a PPA, but with a fixed monthly payment instead of a per-kWh rate.

Solar Loans

Solar loans work a lot like car loans—they help you finance the system, but you own it from day one. This means you can take advantage of tax credits and other incentives, and once the loan is paid off, you get free electricity for the rest of the system’s lifespan.

• Where to get them: Offered by solar installers, banks, credit unions, and specialized solar lenders.
• Loan terms: Typically 5 to 20 years—shorter loans mean higher payments but lower overall costs, while longer terms keep payments manageable.
• Interest rates: Often lower than personal loans, with some lenders offering rates as low as 2.99% APR.
• $0 down options: Many lenders structure payments so they align with your expected energy savings, meaning you can start saving on electricity costs immediately.

The biggest advantage? You own the system. That means you’re eligible for federal tax credits, state rebates, and local incentives that can significantly reduce the total cost of your solar panels.

Home Equity Loans & HELOCs

If you own a home and have built up equity, using it to finance solar can be a smart move. These loans typically offer lower interest rates than unsecured personal loans or solar loans because they’re backed by your home.

• Home Equity Loans: You get a lump sum and pay it back over time with a fixed interest rate.
• HELOCs (Home Equity Lines of Credit): More flexible—works like a credit card with a borrowing limit, and you only pay interest on what you use.

Pros: 

• Lower interest rates than solar loans or personal loans.
• Longer repayment periods (typically 15 to 20 years), which can keep monthly payments low.
• Interest may be tax-deductible if the loan is used for home improvements, including solar installation.

Cons:

• Your home is collateral—if you default on payments, you risk foreclosure.
• Takes longer to secure than a solar loan (since it requires a home appraisal and approval process).

For homeowners who qualify, home equity financing often provides the lowest-cost way to go solar.

Power Purchase Agreements (PPAs)

If you want the benefits of solar without actually owning the system, a Power Purchase Agreement (PPA) could be the answer. With a PPA, a solar company installs and maintains the panels at no upfront cost—you simply pay for the electricity it generates.

• How it works: Instead of a loan payment, you pay a monthly rate based on how much electricity the panels produce.
• Contract length: Typically 10 to 25 years.
• Price structure: Often lower than local utility rates, but some contracts include an annual price escalator (a built-in rate increase each year).

Since you don’t own the system, the solar provider collects any available tax credits and incentives—but in exchange, you get solar power with no out-of-pocket expenses.

Pros

• No upfront costs—great for homeowners who don’t want to finance a system.
• No maintenance or repair worries—the solar company owns and services the system.
• Can provide immediate savings compared to utility rates.

Cons

• You don’t own the system, so you miss out on tax credits and incentives.
• Long-term contracts can be restrictive—moving or selling your home can be complicated.
• Some agreements increase rates annually, which could reduce savings over time.

PPAs can be a good option for those who want solar savings with minimal hassle. Just be sure to read the fine print.

Solar Leases

A solar lease is similar to a PPA, but instead of paying for the energy your panels produce, you pay a fixed monthly fee to rent the system.

• Contract length: Usually 20 to 25 years, with options to buy out, renew, or remove the system at the end.
• Monthly payments: Stay the same each month, which makes budgeting predictable.
• Maintenance: Handled by the leasing company—you just use the power.

Since the leasing company owns the panels, they collect all tax credits and incentives—not you.

Pros:

• No upfront costs.
• No maintenance worries.
• Monthly payments can be lower than your utility bill.

Cons:

• You don’t build equity in the system—you’re just renting it.
• Lease payments don’t go away (unlike a loan, which you eventually pay off).
• If you sell your home, buyers must agree to take over the lease, which can complicate the sale.

Which Solar Financing Option is Best?

For long-term savings, solar loans and home equity financing are the best bet because they allow you to own the system and collect all available incentives. Over time, these options provide the highest return on investment.

For immediate savings without upfront costs, PPAs and solar leases can be solid choices. They let homeowners enjoy lower electricity bills without the responsibility of ownership—just be mindful of contract terms and potential price increases.

Before deciding, ask yourself:

• Do I want to own the system and maximize savings over time? → Solar loan or home equity financing.
• Do I prefer low-maintenance solar with no upfront cost? → PPA or solar lease.
• Am I comfortable using my home as collateral for a lower interest rate? → Home equity loan or HELOC.
• Do I want to eventually eliminate monthly payments? → Solar loan (since lease and PPA payments never go away).

At the end of the day, the best financing option is the one that fits your budget, lifestyle, and long-term financial goals. Compare offers, read the fine print, and don’t be afraid to negotiate—solar financing isn’t one-size-fits-all.

What Are the Best Solar Loans? Comparing Interest Rates and Terms

If you’re considering a solar loan, there’s a lot to think about—interest rates, loan terms, down payments, fees. The fine print matters. Choose wisely, and you could enjoy the benefits of solar while keeping your monthly costs manageable. Choose poorly, and you could end up with sky-high fees or an interest rate that wipes out your savings.

Let’s break it down. Here’s what to consider:

• Interest rates – As of 2024, competitive rates range from 2.99% to 8.99% APR.
• Loan terms – Typically 5-20 years.
• Down payments – Many offer zero-down options.
• Fees – Watch for origination fees or early repayment penalties.

Interest Rates

Interest rates are one of the biggest factors in determining how much your solar loan will actually cost over time. As of 2024, competitive solar loan rates typically range from 2.99% to 8.99% APR. Where you fall on that spectrum depends on a few things—your credit score, the loan term, and who you’re borrowing from.

• Unsecured solar loans with dealer fees usually come with interest rates between 2.99% and 5.99% APR. These are often offered directly by solar installers, but the dealer fees can drive up costs.
• Secured solar loans from credit unions tend to have slightly higher APRs, generally ranging from 7.49% to 8.24% APR. The upside? They may come with fewer hidden fees.
• Compared to other types of financing, solar loans generally have lower rates than personal loans, home improvement loans, and credit cards.

If your credit is solid (think 720+), you’ll likely land a better rate. If it’s below 650, expect to pay more in interest—if you qualify at all.

Loan Terms

Loan terms vary widely, but most fall between 5 and 20 years. Longer terms mean lower monthly payments, but you’ll pay more in interest over time. Here’s what to expect:

• Most solar loans are 15 to 20 years long. This keeps payments low while allowing homeowners to see savings on their electric bills right away.
• 25-year loans are becoming more common, especially from big solar companies like Sunrun, SunPower, and Sunnova. These often come with matching labor and workmanship warranties—essentially, your system and your loan both last for 25 years.
• Shorter-term loans (5–10 years) exist, but they’re less common. While they’ll save you money on interest, the higher monthly payments may not be worth the financial strain.

A zero-percent loan term trap: Some solar companies advertise “0% interest” loans, but watch out. These often have high dealer fees baked into the loan amount, making them far from “free.” Always ask for a breakdown of costs.

Down Payments

One of the big perks of solar financing is that many lenders offer zero-down-payment options.

• 100% financing is available for qualified borrowers, meaning you can install solar without spending a dime upfront.
• Zero-down loans are a major reason solar adoption has skyrocketed—they make it possible for homeowners to go solar without draining their savings.
• If you have the cash, however, making a down payment can lower your interest rate and reduce your total repayment amount. Some lenders offer better terms to borrowers who put down at least 10–20%.

Fees

This is where many homeowners get caught off guard. Solar loans can come loaded with fees that eat into your savings. Always read the fine print.

• Origination or dealer fees: These are common and can range from 15% to 30% of the total loan amount. That’s right—some loans start you off thousands of dollars in the hole.
• Annual fees: Some lenders tack on $50 to $100 per year in maintenance or administrative fees.
• Prepayment penalties: Not all solar loans allow you to pay off your balance early without penalty. If they do charge, fees can range from 1% to 5% of the remaining balance.
• Late payment fees: Usually $25 to $50 per missed payment, or up to 5% of the repayment amount.
• Closing costs: Some lenders charge closing costs similar to origination fees, though they aren’t as common in solar loans.

Choosing the Right Loan

So, how do you pick the best solar loan? Ask these questions:

1. What’s the total cost of the loan? Don’t just look at the interest rate—factor in fees, loan term, and dealer markups.
2. Are there prepayment penalties? If you plan to pay it off early, make sure you won’t get hit with surprise fees.
3. What happens if you sell your home? Some lenders allow the loan to transfer to the new owner, but others require you to pay it off in full.
4. Is there a dealer fee? If so, ask what percentage of the loan it is. A low-interest loan with a 20% dealer fee might not be a good deal.
5. Will my monthly payment be lower than my electric bill? The whole point of solar financing is to save money. If your payments are higher than your utility bill savings, reconsider the loan structure.

The best solar loan is the one that maximizes your savings while keeping your payments manageable. Compare offers, ask the right questions, and don’t be afraid to negotiate. Solar financing isn’t one-size-fits-all—so make sure it fits you.

Is It Worth It to Finance Solar Panels?

It depends. Financing solar can be a great investment—but only if the numbers work in your favor. If your monthly loan payments are lower than your electricity bill savings, you’ll come out ahead from day one. If not, you might be paying extra for solar, at least in the short term.

So, how do you know if financing makes sense? Simple. Run the numbers.

1. Calculate Your Annual Electricity Costs

Start by looking at your current energy bill. How much are you paying for electricity each year?

For example, if your monthly bill averages $150, that’s $1,800 per year spent on electricity. But keep in mind—energy prices aren’t staying the same. Many utilities raise rates by 3–5% per year, which means in 10 years, that $150 bill could be closer to $200 per month (or $2,400 per year).

This is why solar can be such a smart investment—it locks in your electricity costs, protecting you from future rate hikes.

Learn about the average cost of electricity in California.

2. Estimate Your Solar Production and Savings

Next, determine how much solar could save you. This depends on:

• Your roof’s solar potential (sun exposure, shading, panel placement)
• The size of your system (larger systems produce more power)
• Your local electricity rates (higher rates = bigger savings)
• Whether your utility offers net metering, which lets you sell excess solar energy back to the grid

Let’s say your solar panels generate 90% of your electricity needs—this could cut your bill from $150 to just $15 per month (the typical minimum grid connection fee). That’s a potential savings of $1,620 per year.

3. Compare Savings to Loan Payments

Now, let’s say you finance your system with a 15-year solar loan at 5% interest. If your system costs $20,000, your monthly loan payment might be around $150.

• If your electricity savings are $135 per month, you’re almost breaking even right away.
• If savings exceed your loan payment, you’re saving money immediately.
• If savings are lower than your loan payment, you may need to wait a few years for break even.

4. Consider Long-Term Savings

Once the loan is paid off, your solar panels will keep generating power for another 10–15 years or more, meaning years of nearly free electricity. Over a 25–30 year system lifespan, savings can total tens of thousands of dollars.