Solar Financing: What’s The Best Way to Pay for Solar Panels?

July 1, 2023

Home solar panels are more popular than ever, and for good reason: people can save tens of thousands of dollars over the next few decades by installing solar panels on their roof.

Solar panels generate enough energy bill savings to pay back their initial cost within an average of 9 to 12 years, leading to many years of essentially free clean energy for their owner. For many people, an investment in solar power is a no-brainer compared to the cost of grid electricity.

The only problem is, how do you pay for them?

If you have the cash, you can use it. Or, you can choose solar panel financing. Let’s dig into the various financing options out there, which kind of person they’re best for, and how to maximize your profit while minimizing your costs.

Find out if solar is right for your home

The cost of an average-sized home solar installation in the United States is between $18,000 and $20,000 before applying the federal solar tax credit and other solar incentives that may be available. The average installation can produce about 6 kilowatts (kW) of instantaneous DC power generation or about fifteen 400-watt solar panels.

The standard measurement used for cost in the solar industry is dollars per watt. The 6-kW system described above at a total price of $18,000 costs $3 per watt. When comparing solar cost and savings estimates from different installers, divide the total cost by the system size to determine the cost per watt.

The cost-per-watt of solar panels varies based on a few factors. The most important is system size. As size goes up, the cost per watt tends to decrease. Here’s a quick rundown of the average cost of various system sizes:

System size Number of solar panels* Average cost per watt Average total cost (after tax credit)
4 kW 10 $3.25 $9,100
6 kW 15 $2.95 $12,390
8 kW 20 $2.85 $15,960
10 kW 25 $2.75 $19,180
12 kW 30 $2.75 $23,100
14 kW 35 $2.60 $26,936
16 kW 40 $2.60 $29,860

*Based on 400-watt panels

Other factors include the state where you live (labor cost and other overhead changes based on the market), the type of roofing material on your home, and the available incentives in your area.

For more detail, check out our full article about the cost of solar panels.

Ways to pay for solar panels

If you’re looking to get solar panels for your home, there are several options when it comes to paying for the investment:

Here’s a little bit more about each of the ways to pay for solar panels:

Paying cash is the simplest way to get solar panels, and it still provides homeowners with the best return on investment, an immediate increase in home value, and the most freedom. It gives people peace of mind knowing their electricity needs will be met for many years.

Over time, solar panels can help save tens of thousands of dollars in energy costs, and when you pay cash, it reduces your total monthly expenses for at least 25 years (the length of most solar panel warranties).



Who it’s right for

Paying cash for solar panels can be an excellent idea for people who have a good deal of savings and pay a fairly large amount of federal tax every year. They can claim 30% of the costs to install solar panels on their next year’s tax return and start recouping the cost of their solar investment using energy bill savings from day 1.

When people talk about financing solar panels, they’re talking about loans. There are many ways to use a loan to pay for solar panels.

Many financial institutions now provide solar-specific loans designed to provide homeowners with long-term financing at reasonable interest rates. Most of these loans require no down payment and are unsecured, meaning they don’t require collateral or home equity to get started.

Most solar loans are available to borrowers with credit scores of 680 or higher, but there is an increasing number of loan options for people who don’t have great credit.

There are also alternatives to solar loans, like a home equity line of credit (HELOC), home improvement loan, or PACE loan. These come with various interest rates and requirements for collateral and creditworthiness. Credit unions offer better terms but have more stringent requirements.



Who it’s right for

Solar loans are ideal for people who plan to stay in their home for 10 or more years, live in an area with high electricity costs, and have decent-to-good credit and a good deal of income (and therefore an annual tax burden that allows them to claim the full 30% tax credit).

That said, a loan can work for many different kinds of people. If you don’t have the cash to pay for the full cost of solar panels, get quotes from local installers and compare their offers to your current utility bills.


Solar leases and power purchase agreements (PPAs) are long-term agreements between a homeowner and a solar service provider.

The service provider installs solar panels on the home’s roof and either leases the system to the homeowner for a flat monthly payment or sells the electricity produced by the system for a certain cost per kilowatt-hour.

These agreements typically last 20 to 25 years and include maintenance and a performance guarantee (aka a promise that the system will generate at least a certain amount of energy).

Both leases and PPAs often come with an “escalator clause,” which means the payments gradually increase over time, usually by between 1% and 3% per year. This is similar to the average annual increase in electricity prices.



Who it’s right for

Third-party ownership can work well for homeowners who live in an area with very high electricity costs, plan to stay in their home for many years, and have little cash and not enough tax liability to take the federal tax credit.

Be careful when signing up for a solar lease or PPA. Carefully examine the costs, escalator clause, warranties, and maintenance agreements.

Bottom line: is it worth it to finance solar panels?

If you want to own your solar panels and don’t have about $20,000 in the bank, you’ll have to choose solar panel financing. As mentioned above, taking a loan to pay for solar panels can be a really good idea because the panels themselves generate energy bill savings that offset the cost of the loan payments.

Just make sure you understand everything you can about dealer fee, interest rate, and payment schedule. Be sure you can take advantage of the federal solar tax and know whether you’ll be required to pay its value toward the loan.

Speak with a trusted financial advisor to be sure you’re thinking things through. Thousands of people have used financing to get solar panels for their home. You can become one of them as well, but be sure you understand all the important information about your solar before signing on the dotted line.

Calculate how much you can save with solar

This content was originally published here.

Solar Financing: What’s The Best Way to Pay for Solar Panels?