Once you’ve decided to go solar, the next step is figuring out how to finance your system. There are several options available, each with its own benefits and considerations.
Buying Your System Outright
Purchasing your solar system outright is the simplest option. While it requires a significant upfront investment, it allows you to own the system outright, meaning you’ll benefit from any savings, tax credits, and incentives directly. Additionally, owning your system can increase your home’s value, and you won’t have to worry about monthly payments or interest rates.
Solar Loans
If you don’t have the cash to buy the system outright, a solar loan can be a great option. With a solar loan, you can finance the cost of your system and pay it off over time, typically with interest. The major advantage of a solar loan is that you still own the system, so you can take full advantage of tax credits and rebates. Monthly payments are often lower than your current utility bill, leading to immediate savings.
Solar Leases and Power Purchase Agreements (PPAs)
With a solar lease or power purchase agreement (PPA), a third party owns the solar system on your roof, and you pay them for the electricity it generates. In a lease, you pay a fixed monthly amount, while in a PPA, you pay a set rate per kilowatt-hour. Both options often require little to no upfront cost, making them appealing for homeowners looking to save on electricity without a large initial investment. However, since you don’t own the system, you won’t be eligible for tax credits or rebates.
Cash vs. Financing: Which is Right for You?
When deciding between paying cash or financing, consider your financial situation and long-term goals. If you have the cash available, buying outright offers the greatest financial return. However, if you prefer to spread out the cost, a loan can still offer significant savings while preserving your capital. Leases and PPAs might be a good option if you’re looking for immediate savings with minimal hassle, but keep in mind that they typically offer lower financial returns over time.
Government Incentives and Tax Credits
Regardless of how you finance your system, be sure to take advantage of any available incentives and tax credits. The federal solar tax credit (Investment Tax Credit, or ITC) allows you to deduct a percentage of your solar system’s cost from your federal taxes. Many states and local governments also offer rebates, tax credits, or other incentives to reduce the cost of going solar.
Understanding your financing options is crucial for making solar work for your budget. In the next blog, we’ll discuss what to look out for in the solar sales process, helping you avoid common pitfalls.
