Financing plays a big part in the decision to go solar. Luckily, a variety of financing options exist to help make purchasing a solar panel system easy and affordable. In this article, we’ll go over a number of common financing options we offer at Palmetto, as well as some outside lending options that customers may also consider.
Palmetto Solar Financing Options
Compared to the other types of solar financing available, a cash purchase is the quickest way for you to see monthly savings from your solar panels. Not only will you own your system outright, meaning you will not have a monthly loan payment, but you will also see a reduction on your electricity bill.
While this won’t eliminate your energy bill entirely due to seasonal variations and the required fees set by every utility provider, the renewable energy generated by your solar panels may cover up to 100% of your electricity usage in any given month, leading to a dramatically reduced bill in the end. This offset percentage depends on the size of your system installed and your energy usage. That said, while cash is the quickest path to savings, cash purchases require significant upfront capital, as you will be paying the full value of your system before it can begin generating power.
That said, you may see some of that money back! Since cash buyers own their solar system, they could benefit from financial incentives, such as the Federal ITC, which allows homeowners to deduct 26% of their solar system and installation costs from their total tax liability for the year of purchase. If your 26% credit is higher than your total tax liability for the year of purchase, the difference can be rolled over to subsequent years. Note that not everyone is eligible to receive financial incentives and any questions regarding eligibility should be directed to your tax advisor.
Another financing option we offer at Palmetto is a solar loan. Compared to other loan types, solar loans are designed specifically for the financing of home solar energy systems. Such loans typically have greater flexibility baked into them, averaging 20 to 30 years instead of a few years, as sometimes seen with more traditional loan options.
This extended term length is purposeful, as the loan period directly relates to the average lifespan of a solar panel system. Therefore, instead of paying a mandatory higher loan payment in a shorter period of time, the monthly payment is lower and extended, allowing customers to pay it off on their own time, whether that’s for the full life of the loan or within a shorter period.
Like a cash purchase, homeowners who choose to finance their solar energy system may be eligible for financial incentives to help offset the cost of their system. In fact, many solar loans assume that you are eligible for the Federal Incentive Tax Credit or ITC and apply the full value of your savings towards your solar loan in or prior to month 18 in order to maintain a fixed monthly payment for the lifetime of your loan. However, not everyone is eligible to receive financial incentives, including the ITC. Any questions regarding eligibility should be directed to your tax advisor.
At Palmetto, we offer a diverse range of loan products with fixed interest rates that can meet the needs of most people’s financial situations. Click here to get a free quote and to learn more about our loan offerings.
Alternative Solar Financing
While the vast majority of Palmetto homeowners opt for a solar loan, some choose to finance their system independently or through an alternative means, like a lease. Here are some common options that may be available to you.
Home Equity Line of Credit
A home equity loan or line of credit, sometimes known as a second mortgage, allows you to borrow money against the equity in your home—the difference between what you owe on your mortgage and your home’s current value. For example, if you still owe $200,000 on your mortgage but your home is currently worth $300,000 then you have $100,000 worth of equity in your home.
Home equity loans are secured loans, meaning the lender places a lien on your property. While never guaranteed, secured loans are generally known to have lower interest rates than unsecured loans, which mostly use credit scores instead of collateral to determine eligibility and terms. However, since your loan is secured by your house, if you fail to make payments per the terms of your loan, then the lender reserves the right to repossess your home.
Most solar loans, on the other hand, are typically unsecured, meaning that the lien is on the solar energy system rather than the home. However, this is something we recommend you confirm with your lender and/or solar installer before proceeding.
Personal Loan/Line of Credit
You may also consider a personal loan or line of credit, such as a home improvement loan. Customers might choose a personal loan for lower interest rates, which will depend on their personal financial situation and lender. Others may choose to go this route because they simply don’t want to or don’t qualify for a solar loan. There are also some who opt for a personal loan because they don’t want to take out collateral on their home.
These loans typically have a shorter payback period than solar loans (which average 20 to 30 years), therefore their monthly payments may be higher depending on your term length.
Solar Lease & Power Purchase Agreement (PPA)
Solar leases and PPAs offer a way for homeowners in certain states to benefit from solar energy without having to own and maintain a system. Leases and PPAs are ideal for those who:
- Do not qualify for financial incentives and tax credits
- Don’t want to own, monitor, and maintain a system
- Still want more stable, predictable electricity costs
Though there are subtle differences, leases and PPAs typically work the same:
- A customer locks in a fixed monthly payment for a period of time
- The third-party solar company is responsible for maintaining the system
- You do not own the system; the solar company does
- You are not eligible to receive financial incentives; the solar company may
Financial Incentives for Solar Installations
One of the major reasons people decide to go solar is the attractive financial incentives—at the federal, state, and local levels—that help those eligible to offset the cost of their system. Note: Your eligibility to receive financial incentives can depend on your tax liability. This article is not tax advice, and you should always consult a tax professional.
Federal Solar Investment Tax Credit (ITC)
The ITC allows eligible homeowners to deduct up to 26% of the cost of their solar panel installation from their federal income tax liability for the year of purchase. Battery storage, when connected to a solar energy system, may also qualify for the ITC.
It’s important to note that tax credits are not a refund or a rebate. Rather, homeowners will need to have a federal tax liability (i.e. they must owe taxes) in order to benefit, among other requirements. In 2023, the ITC will be reduced to 22% and is scheduled to expire in 2024, making the ever-important decision to go solar that much more timely.
State and Local Incentives
In addition to the ITC, many states, utilities, and municipalities offer other incentives to further offset the cost of solar for homeowners. Some of these incentives include:
- State tax credits
- Sales tax exemptions
- State property tax exemptions
- Net metering and net billing
- Solar Renewable Energy Credits (SRECs)
- Battery storage rebates
- Time-of-use rate incentives
Click on your state below to learn more about how going solar works in your area and any potential incentives for homeowners.
- New Jersey
- New Mexico
- Rhode Island
- South Carolina
Note that not everyone is eligible to receive these incentives. This article is not tax advice, and you should always contact a tax professional to determine your eligibility.