In the last post we talked about the simplest option for purchasing solar panels, paying with cash. Here we discuss financing your system with a solar loan. There are several companies that offer financing for solar panels. You can find a list of solar loan providers on Mass Solar Loans website. Currently there are around a dozen solar lenders in MA.
Like with cash, there are several advantages to this option. For starters, even though youll be paying for the system over multiple years, you are the owner. That means youll receive any tax incentives. We discussed those in more detail last week, but typically youll receive a 30% federal tax credit - until 2019 and then it starts to decrease - and a 15% MA state tax credit up to a $1,000 maximum.
Financing your solar panels provides the fastest return on your investment. Between the tax incentives and the fact that most solar loan providers require little to no down payment or closing costs, you can begin to see return on your investment in the first year after installation. Because of the low or nonexistent down payment/closing costs, youll likely be able to install your solar panels immediately, rather than having to wait and save money to pay cash.
Finally, depending on the cost of your electricity before solar and the terms of your loan, your savings on electricity combined with the money you get for your SRECs* may be up to $400 more than the annual payments on your system.** Thats in addition to any tax credits. Over the course of the loan, the tax credits plus the annual savings could be as high as $10,000.
There are some disadvantages to this option:
- We assumed no down payment or closing costs in the example above. This is possible with some lenders but some may not qualify or may require a higher interest rate.
- Some loans may have to be secured, requiring you to put down some form of collateral, typically your home.
- Although you would see a return on your investment immediately, the total return on your investment is smaller than if you had paid cash.
- You would be responsible for any repairs or maintenance on the system, a cost in addition to your loan payment (vs. other options discussed next week).
- If you decide to sell your home during the terms of your loan, youre responsible for the remainder of the payments even though youre no longer reaping the benefits. If you used your home for collateral for the solar loan, it will have to be paid in full before you can sell. Certain providers may allow the new owners to assume the loan.
Check in next week to learn about the third option - solar leases and PPAs!
*Solar Renewable Energy Credits- we outlined these in our last post.
**Assuming a system that costs $18,750 - the price for a typical 5 kW system in MA per solarpowerrocks.com - if you have a 10 year term and a 4.5% interest rate your monthly payment would be $194.32/month, so $2,331.84/year. If we assume an electric bill of $1,200/year (and that your solar panels handle all of your energy needs) and $1,500/year in SREC income, youre ahead almost $400 every year (though some of that is money youre not spending on electricity rather than actual income).
Photo by Gray Watson - http://256.com/solar/, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=31...
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