Noncash solar financing options include loans, leases and power purchase agreements.

Cash offers the best pricing, while leases and PPAs don’t require down payments.

If you opt for a lease or PPA, your installer remains the system’s owner, making you ineligible for some incentives.

A solar power system is one of the best upgrades you can make to your home for energy efficiency. And yet, the upfront expense of solar panels can discourage many from making the switch. Fortunately, most solar companies offer several solar panel financing options, including loans, leases and power purchase agreements (PPAs).

Solar leases and PPAs offer solar panels at no upfront cost, followed by easy monthly payments, while solar loans may require a small down payment.

Keep in mind that a solar system’s total cost increases significantly when you choose one of the three financing options mentioned above. Purchasing a system in cash always offers the best pricing. Below, we explore each of the payment models.

What are your solar financing options?

Solar customers have four financing options: paying upfront, taking out a loan, leasing or using a PPA. Each payment method has its advantages and disadvantages, and you should carefully choose the one that best suits your specific circumstances.

Cash purchases

A cash purchase is the simplest, most direct form of paying for a solar panel system. It involves paying the entire price of the system upfront.

Despite its high upfront cost, this buying option remains appealing to some homeowners, as some people prioritize total savings over ease of payments.

Cash purchase pros

The biggest benefit of a cash purchase is its huge savings potential. Compared with the other payment options, the total expenditure on a cash-purchased system is always the lowest, which results in high lifetime savings.

Another benefit of buying a system in cash is that you own the system from the beginning, unlike in a lease or PPA. This makes you eligible for certain solar incentives, such as the federal tax credit.

Purchasing a system in cash also saves you the hassle of applying for a loan, lease or PPA and undergoing credit score checks. It even frees you from processing fees, dealer fees or escalation clauses.

The biggest drawback of a cash purchase is that it requires a sizable one-time expense, which you might not have saved up for by the time you want to install solar panels on your home. Secondly, you’re responsible for the solar system’s maintenance and monitoring when you purchase a system in cash.

Solar loans

A solar loan allows you to buy a solar energy system by borrowing money from a bank, credit union or other lending agency. It can be a personal loan, a home equity line of credit (HELOC) or a loan designed specifically for solar.

With a solar loan, you can save between 40% and 70% on your power bills, according to the U.S. Department of Energy .

Like most other loans, a solar loan involves an interest rate, down payment and dealer fees. Lenders’ interest rates for solar loans vary widely; they tend to fall between 5.5% and 20%, or even higher, according to the Solar Action Alliance . Most of these loans have a tenure of five to 20 years. If you opt for a solar loan, you’ll also spend around 20% of your system’s cost on dealer fees, according to New York State-based Kasselman Solar .

Depending on where you live, you can also finance your system with residential property assessed clean energy (PACE) financing — an unsecured loan that allows you to repay the amount through additions to your property taxes.

Solar panel loans are often considered a balanced solution, as they tackle some limitations of cash purchases, leases and PPAs.

A solar loan allows you to reduce or sometimes eliminate your upfront costs. Moreover, it allows you to own the system, making you eligible for tax rebates.

The most obvious drawback of a solar loan, like with any other loan, is the added interest rate expense. If you borrow a loan for $15,000, even with a 4% interest rate, you can expect to spend about $6,815 more over a loan term of 20 years.

Interest rates have climbed in recent years, making solar loans a less desirable option. Solar loans also require you to spend money on dealer fees, which can add a few thousand dollars to your total spend. Overall, these factors significantly lengthen the payback period for your solar power system, reducing the net savings over its life span.

Solar leases

A solar lease allows you to rent a solar panel system for around 20 years instead of purchasing it. Since there is no purchase involved, solar leases require no upfront expenditure.

When signing a lease agreement, you agree to a fixed monthly payment to use the solar equipment. The monthly amount can range from $50 to $250, according to Barnes Solar in Anaheim, California. Your monthly cost will depend on factors such as equipment quality, expected energy generation and your existing electricity bill costs.

Typically, lease amounts are lower than your monthly electricity bill, offering guaranteed bill savings.

With a lease, the solar panel installation company is responsible for the system’s maintenance and continuous monitoring. Depending on the original agreement you signed, you can purchase the solar system at the end of the leasing period for a discounted cost. Keep in mind, though, that solar panels tend to have a life span of 20 to 30 years, according to the International Association of Certified Home Inspectors .

Also, some solar leases have an annual escalation clause built into them, ranging from 1% to 5%, according to Texas Solar Group .

Solar lease pros

A solar lease is a short-term solution to a short-term problem. It takes away the question of an upfront expense.

Another important benefit of a solar lease is that the installation company remains responsible for monitoring and maintenance. Compared to utility bills, lease payments are more predictable, offering peace of mind.

While solar leasing seems like an attractive model at the onset, the cumulative savings it offers are much lower compared to a cash purchase. This is why many installers, including some of the best solar companies , do not offer a solar leasing option.

If your system is leased, the installer remains the system’s owner, making you ineligible for the federal tax credit .

Additionally, homes with leased solar panels may be more difficult to sell. “Having a leased system can complicate real estate transactions, as new buyers must be willing to assume the existing lease or PPA,” said William White , a solar application specialist at Fluke Corporation based in Brookfield, Vermont.

Many solar leases also have a price escalator, further reducing your energy bill savings. Lastly, a leased system may not add value to your property the way a cash-purchased system does.

Power purchase agreements (PPAs)

As interest in solar power rose, residential solar installers borrowed a page from utility-scale solar systems and started offering PPAs. A PPA is an agreement with the solar installer to pay a certain amount for each unit of energy used. In that sense, a PPA is similar to how you pay your utility company.

The PPA amount is based on your system’s size and complexity as well as your location. Generally, the agreement rate is slightly lower than your existing utility power cost. For instance, if you are paying 18 cents per kilowatt-hour (kWh) for your grid power, your solar installer may offer a lower rate of 14 to 16 cents per kWh.

Similar to a solar lease, PPAs also have zero upfront costs since the installation company retains the system’s ownership. The company will also handle the system’s monitoring and maintenance.

PPA cons

PPAs share an important benefit with leases — they require zero upfront payments. But PPAs beat solar leases in that they charge you only for the energy used. You may have to pay your full lease premium even in a rainy month when energy production is low. But with a PPA, you only pay for the energy your system generates.

PPAs also share the biggest drawback of solar leases — they raise the total system ownership cost substantially, resulting in significantly lower savings than a cash purchase. Systems with a PPA are also owned by the installer, making you ineligible for tax credits.

Like leases, PPAs can also have price escalators, reducing the potential savings. Similarly, systems with PPA do not affect a home’s value and may also reduce interest among buyers.

How much do solar panels cost?

“The ideal price range of a home solar system in the U.S. is between $15,000 and $25,000 and is largely dependent on location,” said White, who is also a NABCEP PV Installation Professional.

Your solar power system’s cost will also depend on your system’s complexity and the equipment used.

Remember that the federal solar tax credit and other available incentives can decrease your final solar costs by 30% or more.

“It’s important to remember that equipment costs and efficiency are only a small part of the picture,” said Orion Wilkinson , a business development manager at EcoFlow based in San Jose, California. “Utility rates, interest rates, and local and federal tax incentives are all part of the overall equation people need to consider,” he added.

What about tax credits and rebates?

When you purchase a solar power system, you may be eligible for one or more solar incentives. The most important solar incentive in the U.S. is the federal tax credit, officially known as the solar Investment Tax Credit (ITC), which offers an income tax rebate equivalent to 30% of your system’s purchase value. It is one of the most popular solar incentives today — 36% of respondents from our November 2023 solar survey of 1,000 homeowners reported claiming the ITC.

Utility rates, interest rates, and local and federal tax incentives are all part of the overall equation people need to consider.

As mentioned, you will not be eligible for the federal tax credit with a system that’s leased or under a PPA.

However, many American states also offer their own solar incentives, including direct rebates and tax incentives. A noteworthy 40% of respondents from our survey benefited from solar incentives in their respective states.

You can check the solar incentives available to you on the Database of State Incentives for Renewables & Efficiency website.

The table below shows our survey respondents’ eligibility for local and federal credits and incentives.

What’s next?

Now that you understand the various solar payment options and their pros and cons, you can gauge your own budget and needs to make an informed decision on which option is right for you.

If you opt for a cash purchase, make sure the company offers strong warranties and has a track record of good post-installation service. If you choose to borrow a loan instead, shop around for a low interest rate and minimal dealer fees. For solar leases and PPAs, read the contract carefully before signing, and keep an eye out for escalators.

Regardless of which financing option you choose, be sure the installer is licensed and certified. Read customer reviews and keep an eye out for any patterns of negative customer sentiment, such as unreliable communication. We recommend getting quotes from at least three solar companies to be sure you find the option that’s right for you.