Pro Tip: all solar contractors use the same solar lenders. So, getting the best solar loan isn't based on the installer you pick but rather your goals and the details of the project.
You versus PG&E: the pain is real.
Play along here and imagine with us for a second that you already have solar with a low interest, low payment solar loan and a representative from PG&E knocks on your door...
They tell you that if you turn off your solar system they'll payoff your loan and you'll enjoy:
a higher monthly payment than your solar loan
your cost of energy will go up 11.3% this year (CPUC source)
and when the power goes out everything turns off.
You'd be crazy to sign up for that, right? Of course and that's what you're agreeing to by not getting solar. You're not alone in knowing that solar is a no-brainer, which is why you're researching solar loans, but it's important to establish how bad the status quo really is.
But, you might be surprised to know that most of our clients come to us with plans to purchase solar with money from their retirement or other investments. They want no monthly payment, a tax credit and for a select few it's the right move but more often than not there is a better way. Here's why:
Should I purchase solar with cash or a loan?
With the current state of the economy being high inflation, the stock market dropping and a real risk of a recession, now might be the worst time to take your own money out to buy solar.
We're not Financial Advisors and we always recommend consulting your trusted money manager but it doesn't take a rocket scientist to realize that selling your investments now means you realize the recent stock market losses. And if you're planning to tap your retirement savings for solar to control your cost of energy into retirement, you're using money that could be working and growing for you instead.
But does that mean you wait to buy solar while you wait years for the right time to pull your money out?
Think about it. What do PG&E rates do every year? When is the last time you heard of electricians getting paid less for their trade? If the cost of groceries and gas are going up, is it silly to think that the metal, wire, and the electronics in your solar system will be higher, too? How much money are you missing out on each month from solar savings?
This is the paradigm shift that we coach our clients through:
10.49% is how much the S&P 500 grows annually according to 100 years of data by Investopedia.
4.99% which is the typical interest rate for a solar loan down to as low as 0%.
Using your own money means taking away its ability to grow over 5 times the annual rate of a solar loan. It just makes dollars and cents to use the bank with interest rates this low.
You're already making a payment for your electricity bill. Now get that same amount of energy for less, avoid inflation with a payment that is permanently fixed, and avoid putting your own hard-earned money at risk so your return on investment starts on day one, not year 7.
Plus, you afford better protection if there is a contractor dispute up to the passing of the project's final inspection. Solar lenders give you final sign-off on the funding of your loan until punch list items are resolved. Frankly, it's just safer to not ever have to fork over money to a contractor when you don't have to and solar loans give you that peace of mind.
But "I don't want to pay interest" is often the next response. And this is where it gets juicy because there are solar loans with 0% interest for the entire term that we'll discuss in a second. But, why solar lends itself, pun intended, to being financed is that the IRS credits you 26% of the total loan value.
We'll cover why that 26% is massive and could really add to your long term net worth in the final section of this guide but first here's what you need to know about solar loans.
Solar loan basics plus examples
Any good solar loan from a reputable lender will include all four of the items above. You will never be expected to come up with a down payment and after what we discussed above about preserving your cash you shouldn't want to put anything down anyway. Rates on the best loans are from 5.99% down to 0% for the entire loan term and are always fixed, never adjustable. But, unlike home loans where your credit score determines your rate, with solar if you have good credit (650 plus) you will get access to most rates along with terms from 10 to 25 years. So you get to pick the rate and term that fits your goals. Are there rates higher than 5.99? Of course, and some clients do select them for very specific scenarios, especially where they're planning to pay the loan off before the term. Same with the length of the loan, there are loans as short as a few years but the payment is insanely high so it would only make sense for fringe scenarios. What isn't a fringe scenario is selling your home and needing to transfer ownership of the system. We see that all the time and Realtors are really coming around to solar because they can't avoid it. No one wants to deal with PG&E anymore. What you may be seeing a lot on listings is "owned solar" which is great because it means buyers understand the value of owning solar. With any good solar loan you'll have the ability to transfer the remaining payments to the next buyer, which is reasonable. If they want to enjoy payment-free power unlike a non-solar home, they can pay it off. Now, let's check out these common scenarios so you get a sense of which solar loan might be a better fit for your project.
In this scenario, you plan to be in the home for 10 years, your average PG&E bill at the beginning of this time period is $287 per month and PG&E's yearly rate increase is 8%.
In this case, the total cost of PG&E energy over 10 years = $46,448 (avg. monthly payment of $387)
Across all three example loans we see savings from day one and if this fictional homeowner decided to stay in the home longer the savings get even better.
We hear people say "don't go solar if you plan to sell" but unless you have stock in PG&E or just like giving money away it makes sense. Especially when loans nowadays are transferable to the next owner.
The first example has a higher rate but it gets a larger tax credit. That maximizes how much you get back from the IRS that you can put to work for you to either: (A) pay the loan down significantly which also lowers the monthly payment by the way or (B) reinvest that money to grow over time, contributing to a positive impact on your net worth.
In the second example, you're going for a really low rate and getting the most savings on day one. This would be the perfect loan if you planned to sell in a few years. Lock in savings today, get a chunky tax credit and gives you: (A) future protection against rising energy costs if you need to stay in the home longer or (B) gives your home a great selling point of low fixed rate power.
Finally, the third example is for the person planning to stay in the home a long time and wants to enjoy years of payment-free electricity. The 0% interest for the entire term coupled with neutral savings on day one means it costs you nothing per month to make the switch now, saving you hugely in the future and allowing you to collect a hefty tax credit in the process.
Our mission here is to show the most popular solar loans that fit what you'll likely need. Consulting with us, which never costs you a dime, is where we can really help figure out the right loan for your specific project and plan.
Last but not least, the security of your private information is so critical. You will never have to give your social security number to us since the lender themselves provides you with access to a secure portal to provide that info without us ever seeing or having access to it. Gotta love technology!
How a solar loan can boost your net worth
Here is where you separate yourself from the average solar buyer. You're unlikely to hear the following points anywhere else. It's just smarter to use "OPM" aka Other People's Money! Why? First, you avoid waiting for a Return On Investment or "R.O.I." because you save from day one and aren't using your cash to do it. We like that! But there is a massive part of this that goes unnoticed. You can have a real positive impact on your future net worth by keeping your cash working for you AND reinvesting a bigger tax credit that you would have gotten with a cash system. How? The IRS gives eligible home owners a 26% tax credit on the contracted value of the system. Solar loans include financing costs built into the loan (you don't pay closing costs they're just factored into the loan) meaning that your solar loan will always be higher than than a comparable cash quote and that's ok because now you're getting 26% on a bigger solar contract value. Now, if you're really sharp, you might know that there is something called "Truth In Lending" laws that prohibit products from costing more with financing. The way various industries get around this is by offering a financed cost and offering a cash discount. Back to our earlier comments on cash vs loan, yes you get a lower price but that doesn't really help you. You get less of a tax credit and you take your money out of the interest earning game. Nothing is free in life and the bank surely isn't going to give you a 2% loan with a 25 year term because they want you to go green. But that's ok because you're still locking in big savings versus PG&E while playing the game smarter by getting more of your Federal income tax money back into your bank account to re-invest. Using the example loan above, here's how $9000 re-invested can grow over 25 years, the typical solar system lifespan:
Over 25 years, $108,972.48*
*The chart estimates how much your initial savings will grow over time based on the 100-yr S&P 500 average annual growth of 10.49%. Please remember slight adjustments to these variables can affect the outcome. This is for example purposes only and is not intended as financial advice. Consult your financial advisor before making any investment decisions.
Would it be crazy to say purchasing solar with a loan is a no-brainer? With savings from day one and an opportunity to have a major impact on your net worth, we don't think so either.
Connect with us for expert guidance on the right solar loan?