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Is Financing Solar Panels Worth It?


A man installing a solar panel

It is no news that harnessing just a fraction of the sun’s energy could dramatically cut our electricity bills and reduce our carbon footprint. However, the upfront cost of solar panels is pretty steep, averaging around $31,558, according to the Lawrence Berkeley National Laboratory.


But before you dismiss the idea as too pricey, let's talk about solar financing. Yes, laying out that kind of cash upfront might not be in the cards for everyone, but financing options are opening doors (and installing solar panels) for homeowners across the country.


So, is financing solar panels worth it? When you consider the long-term savings on energy bills and the available tax incentives, the answer leans heavily towards a resounding yes.


How much do solar panels cost

Yes, the upfront cost can be a hurdle, but don't let that dim your solar dreams. So, how much are we talking about? On average, outfitting your home with solar panels could set you back around $31,558. But here's where it gets interesting—depending on where you live, this number can swing higher or lower. Why? Because factors like state incentives and the amount of sunshine your roof basks in play a huge role.

Types of Solar Panels

Now, onto the types of solar panels. You've got three main types: monocrystalline, polycrystalline, and thin-film. Monocrystalline panels, known for their superior efficiency, command a premium, typically costing between $1 to $1.50 per watt. These panels are crafted from a single, pure silicon crystal, offering top-notch performance and longevity, making them a favorite despite the higher price tag. 


Polycrystalline panels, on the other hand, are slightly less efficient but more budget-friendly, with prices ranging from $0.70 to $1 per watt. Made from multiple silicon crystals fused together, they present a practical alternative with a modest compromise on efficiency. Thin-film panels, distinct for their flexibility and tolerance to high temperatures, are priced in the same ballpark but necessitate more installation space due to their lower efficiency rates. This technology is ideal for large, commercial spaces where area is not a constraint, offering a versatile solution in the solar panel spectrum.


The total cost includes both hard costs (the panels, inverters, and other hardware) and soft costs (installation, permits, and the like). Understanding this breakdown as well as the long-term savings on your electricity bills is crucial for navigating the financial journey of going solar.


How much money can I save by going solar?

Facing the initial shock of solar panel installation costs might have you second-guessing, but let's break down the real deal behind going solar. It's not just about the upfront costs; it's about the substantial savings over time. Imagine reducing, or even erasing, your reliance on the power grid. And with financing options like personal loans or Power Purchase Agreements (PPAs), you don't need to front all the cash immediately.


Dive into the numbers: the Energy Information Administration highlights a stark contrast in monthly electricity bills across the states, with Hawaii at a steep $177.78 and Utah at a more modest $80.87. The national average? About $120.01 monthly, or roughly $43,200 over three decades. Your solar savings could very well surpass the installation costs, especially with long-term residence in your home.


Consider this scenario: a 7.2 kW system at $4.20 per watt totals $30,240. Factoring in the average electricity bill and the 30% solar tax credit, you're looking at significant savings. The math reveals a payback period of 14.7 years, with savings of $7,633 over 20 years. Remember, your location and energy usage are key factors in determining the cost-effectiveness of solar panels for your home.


So, is going solar worth it? If playing a part in saving the planet while saving some green sounds appealing, then solar energy might just be your bright spot. Plus, you can always reach out to us for a free quote detailing potential costs, savings, and tax benefits right from the start.


How to finance solar panels

Here's a closer look at your options to make solar panels a smart investment, not a financial burden.


Paying with Cash: The most straightforward method, paying cash for your solar panels, means you start saving on your energy bills right away. It's the ideal scenario but requires a significant upfront investment.


Personal Loans: A flexible choice for many homeowners. Personal loans don't tie up your home or the panels themselves as collateral. You can borrow from $1,000 to $100,000, with APRs typically between 6% and 36%. The advantages? Rapid funding and no collateral risk. The downsides include potentially higher interest rates and a lack of solar-specific tax benefits.


Home Equity Financing: Tapping into your home equity can secure you lower interest rates (about 4% to 8%) and the perk of tax-deductible interest. The flip side? Your home becomes collateral, meaning if you default on the loan, you risk foreclosure. Plus, the repayment term could stretch over 15 to 20 years, potentially offsetting your solar savings.


FHA 203(k) Loans: These loans are a boon for those looking to incorporate the cost of solar into their mortgage, offering softer credit requirements and lower interest rates than personal loans. However, they come with the added cost of FHA mortgage insurance and require that the project starts within 30 days of loan closing and finishes within six months.


Contractor Financing: Many solar installation companies provide financing options, potentially at lower rates than home equity loans or personal loans. This route offers convenience and quick project start times. However, be wary of long repayment terms that could negate your savings and the possibility of origination fees, not to mention the hard credit check required without pre-qualification.


Each financing route has its unique set of benefits and drawbacks. Your choice should align with your financial situation, your long-term savings goals, and your comfort level with the associated risks. Remember, our team is here to provide a free quote and guide you through these options, ensuring you make the most informed decision towards a brighter, solar-powered future.


Solar Leases vs. Power Purchase Agreements (PPAs) 


solar panel on a roof

Solar leases and Power Purchase Agreements (PPAs) offer a way in without the upfront cost. Here's the lowdown:


Solar Leases: Imagine renting solar panels like you would a car. You pay a monthly fee to use them, which can lower your energy bill. But, there's a catch – your savings might be less because of the lease payment. And, if you move, you'll need to sort out the lease with the new homeowners or pay to move the panels. Leases typically last 20 to 25 years.


PPAs: With a PPA, you agree to buy the power the panels produce, usually at a cheaper rate than your utility company offers. The company that installs the panels takes care of maintenance. However, your rate might go up slightly each year.


Deciding between a lease and a PPA? Consider your long-term plans. Staying put for a while? A lease might work. Prefer not to worry about rising rates? A PPA could be better. Both options let you enjoy solar savings without the big initial investment.


Maximizing Savings with Solar Panel Tax Benefits

Unlocking solar tax benefits can significantly reduce the cost of going green. The federal government steps in with a tax credit, letting homeowners deduct a substantial part of their solar system's cost directly from their income taxes. For installations from 2022 to 2032, you're looking at a generous 30% credit. Imagine installing solar panels and getting 30% back in tax savings. That's a deal hard to ignore!


To grab this benefit, your solar system needs to be installed between January 1, 2017, and December 31, 2034, at either your main home or a vacation spot. The catch? You need to own the panels outright, whether you paid in cash or financed them. Leases or power purchase agreements don't qualify. And yes, the system must be brand spanking new.


Don't Overlook Local Incentives: Beyond the federal credit, local perks can sweeten the deal. Some places, like Austin, Texas, offer rebates (think $2,500 just for going solar and learning a bit about it). These local incentives are deducted before the federal tax credit is applied, maximizing your savings.


Say you invest $20,000 in your solar setup in 2023 and snag a $2,500 rebate from your local utility. You'd subtract that rebate from the total cost, then apply the 30% federal tax credit to the reduced amount of $17,500. After all is said and done, your solar system's net cost drops to $12,250.


Diving into solar isn't just an eco-conscious move—it's a financially savvy one, thanks to these tax benefits and rebates. Ready to make the sun work for you?


FAQ

What is the average payback period for solar panels?

The average payback period for solar panels is about 5 to 8 years. This timeframe can vary based on your local electricity rates, the cost of the solar system, and available incentives.

Can I finance solar panels with bad credit?

What happens to my solar panels if I move?







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