Exploring Financing Options For Your Solar Panel Installation
The cost of solar panels can be steep, but financing options are available that help make the investment more affordable. These options affect your installation total, solar incentive eligibility, and return on investment (ROI). How much is the cost of installing solar panels in NJ? The average installation costs for solar panels are $2.75 per watt. A typical 5 kW system totals $13,750, or $9,625, once the 30% federal tax credit is applied.
A loan is one of the most popular ways to pay for a solar panel installation. There are several options; therefore comparing rates is essential.
Home Equity Loans
Making consistent payments and taking advantage of interest deductions make a home equity loan or second mortgage a viable choice for financing solar panels. However, they have shortcomings and might only be appropriate for select people.
In addition, a high credit score is required to qualify for a home equity loan. Most lenders require a minimum score of 620, however others may accept a lesser mark.
These loans are also called home equity lines of credit (HELOCs). They are similar to personal loans, allowing you to borrow money as needed. But with a HELOC, you can only borrow a percentage of the total value of your home.
Some people use their home equity for personal expenses, such as vacations. But if you don’t know how much you can afford to spend and are tempted to take out more than you need, a home equity loan could be considered debt.
Personal Loans
Whether you’re financing a solar panel installation on your own or paying for it through a lender, some financing options are available to help you. These include purpose-made solar loans, personal or home improvement loans, and mortgages.
Specialized solar panel loans are designed with the installation of solar panels in mind and tend to have longer repayment periods (up to 10 years) than personal loans. They can be more affordable, but comparing them with the other financing options is important to see which works best for your situation.
For homeowners with good credit, personal loans are a smart way to finance a solar panel installation. They often have competitive interest rates, fast approval, and minimal upfront costs.
If your credit score isn’t high enough to get a personal loan, you can consider a home equity loan or a home equity line of credit (HELOC). These loans can be a great way to finance a solar panel installation and other energy-efficient home upgrades. However, they have more involved application processes than personal loans. You’ll need to show that you have sufficient equity in your home and that installing solar panels will increase its value.
Refinancing Your Mortgage
Refinancing your mortgage is among the easiest ways to pay for the installation of solar panels. By refinancing your mortgage, you can take advantage of the federal solar tax credit and reduce your overall mortgage interest costs.
Ultimately, the best way to determine how much financing you’ll need for your solar project is to weigh the cost of the panels versus the savings you’ll receive on energy costs over time. You can do this with your solar installer or a financial advisor.
If a homeowner wants to finance the installation of solar panels but is uncomfortable using the value in their home as collateral, a cash-out may be a great option. Furthermore, if you have enough equity in your home and intend to stay there for at least six months, it can enable you to benefit from the federal solar tax credit.
Power Purchase Agreements
Power purchase agreements (PPAs) are an excellent way to finance your solar panel installation without paying upfront costs. These are also great options for commercial businesses, non-profit organizations, and other organizations with limited capital.
The simplest explanation of a solar PPA is that you pay for the energy your system produces over time, and it’s cheaper than your electric utility rate. However, there are several ways to structure these agreements, including fixed or escalator pricing.
Fixed pricing: The rate you pay for your electricity is set during the initial PPA agreement, and it can either remain flat or increase at a fixed escalator rate. This can save you money throughout your contract, especially as utility prices rise.
Escalator pricing: The rate you pay for your electricity will typically increase over time, with a 2%-5% escalator. This can help offset inflation-related cost increases for your solar system and can help keep your overall monthly cost down.
Consumers should carefully review their PPA contracts to get the best deal for their situation and energy needs. They should also be aware that these agreements are a financial commitment for 10-25 years, so it’s important to read and understand them carefully.
Before signing a PPA, it’s important to research the solar developer you’re considering and ensure they are licensed to do business in your state. This can help ensure that your solar energy system is designed and built to the highest standards and operates as efficiently as possible.
