Solar Loans – Things You Need to Know
Posted by Frank Gogol in Loans | Updated on May 30, 2023
Solar panels are getting more and more common all over the world. These installations are praised by many people thanks to their ability to reduce your energy bills while helping the environment and getting you tax credits and rebates. They turn sunlight into electricity, thus powering your house. All in all, investing in solar panels can only benefit you.
Installing these panels can be quite expensive, so no matter how much you want them, you may not be able to pay for them right away. All is not lost, though. Solar loans can help you achieve this dream of yours, and while you’ll get yourself in debt, you’ll reduce your electricity bills, so it’s all for the best.
In this post, we’ll take a look at solar loans and what your financing options are.
Table of Contents
What Is a Solar Loan?
The name is pretty self-explanatory – it is a type of loan that lets you borrow money to pay for solar panels. Then, you will pay it off in installments over time. The amount can be borrowed from a bank, online lender, or a solar company, depending on the case.
Solar panels can be pretty expensive. It may cost you $25,000 – $30,000 to have solar panels installed, sometimes even more. Even if the price of solar energy systems is not as high as it used to be, it’s still not accessible to all individuals.
Fortunately, solar loans can solve all your issues in this regard.
Solar Loan Financing Options
There are many financing options for solar panels – you just need to know where to look. Your available choices include secured and unsecured loans. The right one for you is influenced by your home equity, credit history, credit score, income, and other factors.
Let’s look at these solar panel financing options in more detail:
Home Equity Line of Credit
A HELOC or home equity line of credit is a useful option for people who built enough equity in their house. It requires using the home as collateral, and the best thing about it is that it lets you borrow as you go. Therefore, if unexpected expenses arise, you can borrow more cash to cover the costs.
Being this flexible is what makes this financing type praised by so many individuals. On top of that, in the beginning, you have the chance to only pay your interest. After this period is over, you can start paying off the actual amount you’ve borrowed.
Rates are variable, though, so you should consider this before applying for a home equity line of credit.
Home Equity Loan
Home equity loans are perhaps a much better alternative if you already know the cost of your solar panel installation project. With home equity loans, you also need enough equity in your house to be able to borrow.
The loans can have fixed rates, but they will come with much longer repayment terms. This is because your house is used as collateral in order to decrease the risk for the lender.
If you don’t know the price of the solar energy system yet or you’re worried that the price will change as you go, then home equity loans might not be the best option for you.
Cash-Out Mortgage Refinancing
If you took out a mortgage that you’re still paying for, you can look towards cash-out refinance. It involves getting a new mortgage, one that is greater than your existing one.
The money you are given will then let you pay off your older mortgage, with the difference being used for your solar energy system installations.
However, you must bear in mind that there will be 2%-5% closing costs when paying off a mortgage. Depending on the sum, you can pay quite a considerable amount of cash in closing costs alone, which limits the amount you can use for your solar panels.
So, you should only go for cash-out mortgage refinancing if you can enjoy small closing costs and get better rates than the ones on your old debt.
Personal loans serve a lot of purposes, which is what makes them so popular. There are different types of personal loans, with solar loans being one of them.
This type of funding can grant you access to tens of thousands of dollars so you can afford to install your new solar panels. Typically, solar loans are unsecured. You can also get fixed interest rates for them, depending on the lender.
When you don’t want to get involved with any of the options above or when none of them are convenient in your case, you can opt for in-house refinancing.
Many solar panel companies offer customers financing through a third-party lender. This is an easy way to make sure you get as much as you need for the new energy system.
In-house financing usually requires no down payment, and you do not have to use your property as collateral. At the same time, the rates might be lower, yet the repayment term might be longer, especially when compared to a personal loan.
Best Solar Loan Options
When you choose to take out a solar loan for your new energy system, it’s crucial to know what your alternatives are in terms of lenders. Here is a list of some of the best and most trustworthy options:
SoFi offers solar loans that start at $5,000 and go up to $100,000. If you need more cash for your new solar panels, it can be a wonderful option. The estimated APR is 6.99-22.23%.
However, you need a credit score of at least 680 to qualify.
With LightStream, you will need a score of 660 to be eligible for solar loans. They have an APR of 5.73-19.99%. Although you need a good score, they let you borrow significant amounts. The maximum you can get is $100,000.
The downside is that you must borrow a minimum of $5,000.
Is your credit score lower? Don’t worry: you can still borrow money from Upgrade. The lender only has a credit score requirement of 560, although they take other things into account when determining eligibility.
Their minimum loan requirement is $1,000, and you can borrow up to $50,000.
Alliant has an APR of 6.24-27.24%. Loan amounts go from $1,000 and $50,000, and the minimum credit score requirement is 620.
Best Egg is another great alternative for people with lower scores. You can qualify as long as your score is at least 600. You can borrow between $2,000 and $50,000.
Considerations When Purchasing Solar Panels
Before you buy solar panels, there are some factors to consider.
For instance, you need to determine the size of the system you’ll require. This can be done by using a solar savings calculator.
Then, calculate the sun exposure, as well as how much you can save with solar panels. Solar panels can lead to better savings in some areas, especially if sunshine is stronger and more common there. Find out your kilowatt-hours usage to calculate everything.
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Solar panels are great investments, but they can be expensive. Make sure to consider one of the financing options here if you want to purchase them but cannot pay out of your wallet.