Solar loans and solar leases are two popular financing options for homeowners looking to make the switch to solar. 

Each of them allow you to install solar panels without worrying about the large upfront costs that come with solar PV systems. In fact, there is often a zero-down payment required for both solar loans and leases.

But what exactly is the difference between these two financing options when it comes to a solar investment? And which is the right one for you?

What is a solar loan?

A solar loan is a loan that is taken out for the purchase and installation of solar panels. Usually, loan providers will offer zero-down solar loans with many different payment structures, interest rates, and term lengths. 

In most cases, the monthly payments on the loan will be less than what your electric bill payment was prior to your solar installation. 

The benefit of solar loans is that they allow homeowners to buy a solar system even if they don’t have the money upfront for a cash purchase. This means that once the loan is paid off, the homeowners own the solar panels on their roof. 

However, it is important to keep in mind that lenders usually require you to have a good credit score in order to take out a solar loan. 

What is a solar lease?

A solar lease kind of works like a car lease. The homeowner does not own the solar panels - instead, they make a monthly lease payment to a solar installer. 

In return for the lease payments, the homeowner gets to use the energy that the solar panels produce to power their home. Ultimately, they will see lower electric bills, as they will be paying less for power than what they’d typically be paying at the utility rate. 

They usually have lease terms between 20 and 25 years, and the lease payment will typically be less than what the homeowner’s electric bill was before installing solar. 

It will often include a price escalator, which outlines how much the monthly payments will go up each year. When the lease is up, homeowners have the option to have the solar panels removed, purchase the solar panels at a discounted price, or extend the lease. 

Similar to solar leases are solar power purchase agreements (PPAs), which also require no upfront payment for the installation of solar panels.

Solar loans vs solar leases

Solar loans and solar leases are both popular financing options for homeowners looking to install a solar energy system. Each of them comes with their advantages and disadvantages. 

Let’s take a look at the following to see how the two stack up:

• Long-term savings
• Monthly payments
• Tax credits and incentives
• Maintenance
• When it comes to selling your home

Long-term savings

When it comes to utility bill savings, homeowners will save more with a solar loan than they would with a solar lease. 

Generally, solar leases will have terms between 5 and 15 years. After that, you have no more monthly lease payments, and you own the solar panels! Once your loan is paid off, your panels will continue to provide you with free electricity that offsets your utility bills. 

With a lease, on the other hand, you are locked into monthly payments for a full 20 or 25 years of the agreement. The money you pay on a lease does not go towards purchasing the system, so once the contract is up, you stop saving on your utility bills. 

So, while a solar lease will save money on your electric bills, your savings will be substantially less than if you had purchased the system with a solar loan. 

Monthly payments

Solar loans and solar leases both reduce - or in many cases eliminate - your electricity bill. 

However, you will still have to pay either a monthly lease or a monthly loan payment. The payments on solar loans are usually fixed, so they will remain the same throughout the term of the loan. 

Solar leases usually include price escalators, meaning that the cost of your monthly payments will increase each year. So, if the cost of electricity doesn’t increase in a certain year, you could actually end up paying more than you would have for your electricity bill without solar. 

Tax credits and incentives

With both solar loans and solar leases you get to take advantage of net metering, which is the key factor in eliminating your utility bills. 

However, if you enter a solar lease, you won’t get to take advantage of other solar incentives and rebates, like Solar Renewable Energy Credits (SRECs), the federal investment tax credit (ITC), or other utility incentives. Instead, the solar leasing company receives all of those incentives, due to the fact that they are the system owners. 

If you decide to finance your solar system with a solar loan, you are able to get the federal tax credit, SRECs, and any local and utility incentives available in your area. This is because with a solar loan, you are the owner of the solar panel system. 

Maintenance

When you purchase solar panels, you are responsible for monitoring and maintaining the system. Although solar panels are relatively low maintenance, there’s always the possibility that you’ll have to pay for some repairs and upkeep over the lifetime of the system. 

When you enter a solar lease, you are not responsible for any maintenance or monitoring of the solar system because you do not own the panels. So, if something goes wrong, the solar company will be obligated to cover the payment for any repairs. 

Selling your home

For homeowners who lease solar panels, selling their home can be a bit of a challenge. 

The homeowner has to either buy out the lease, which can be expensive, or the lease can be transferred over to the new homeowner. It can be difficult to find homeowners who are willing to enter a solar lease agreement. 

However, for homeowners who took out a solar loan, selling their solar home can be profitable and easy. Because solar panels increase home value, those that have solar installed tend to sell faster than non-solar homes, and typically sell for more money. 

Keep in mind, if a homeowner takes out a secured home equity line of credit (HELOC) loan, the loan must be paid off before the house can be sold, since the property is used as collateral. If an unsecured loan is used, the house can be sold and the previous homeowner will continue to be responsible for the loan. 

Because solar panels add value to the home, unsecured solar loans can be easily paid off with the extra money from the house sale. The new homeowners then get to enjoy the benefits of solar, without having to enter into any sort of long-term contract or take on additional payments. 

Since homeowners with a solar loan own the system, the prospective home buyers won’t have to worry about entering a long-term lease contract, and they get to benefit from the solar panels. 

Is a solar loan or a solar lease right for you?

In most cases, taking out a solar loan is a better choice than entering a solar lease. 

The main benefit of solar loans is that the homeowner will see substantially greater savings over the lifetime of the solar system. Plus, homeowners get to take advantage of solar incentives that they otherwise wouldn’t qualify for with a solar lease.

Despite the advantages of loans over leases, there are some cases in which a solar lease could be the best option for going solar. 

A solar lease might be right for you if:

• You are not eligible for the federal solar tax credit
• You are not eligible for SRECs
• You do not qualify for a solar loan

In order to find the best solar financing option for you, you should get solar quotes from multiple installers.