Editor's choice: LendingClub personal loans
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- May qualify with a credit score of 640
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While you may not be able to commit to an entire solar roof from Tesla, solar panels could still be a great investment. The world is slowly moving towards renewable energy, and there are incredible benefits to supporting that move, both financially and environmentally. You have multiple options when it comes to financing solar panels for your home.
Solar projects are typically funded one of several ways, depending on what you’re looking to get out of your new energy source. But these can be chunked into two categories: leasing and buying.
To buy a solar panel system outright, you’ll likely need financing. Luckily, there are other options.
Your state or local government may offer residential Property Assessed Clean Energy (R-PACE) financing in your area. R-PACE financing is an opt-in program that allows homeowners to participate in an upgrade of their property via tax-assessment. In short, the cost of the improvement is paid via an increase in property tax over an extended period — usually between 10 and 20 years.
The improvements made to a house under the R-PACE program stay with the house — which is to say if you move, the solar panel system that was installed won’t be moving with you. It also means the debt won’t necessarily move with you either, as it’s a debt of the property and not the owner.
Also known as a “no-equity home loan” this type of financing is done through the federal government. You might like this options because you don’t need to have home equity built up and it comes with competitive fixed interest rates. You might not like this option is you want to borrow more than $25,000 or want to get your loan quickly. Title I home improvement loans could take around one to two months to process.
A general purpose personal loan can be an effective option here if you have the credit history to back them up. Solar panels can be pricey, and personal loan rates and terms may not cut it unless you have excellent credit. Be sure to consider the offer’s monthly payments against what you’re able to afford in addition to your other expenses.
A loan that’s backed by the amount that you own your home. In other words: What you’ve paid off so far on your mortgage is used as collateral. This is a viable option because you could possibly borrow 80% to 90% of your home’s value. The downside if you must have that equity built up beforehand.
Similar to a home equity loan, a home equity line of credit is also a loan but acts as a revolving line of credit, allowing you to draw against the equity in your home as you need it. You don’t have to spend it all at once and as long as you pay it back according to the terms, you can keep drawing from it for a longer period of time, often five to 10 years.
Your cost will vary based on the company you purchase through, your location, the size of the system that you get and your loan’s interest rate. On average, a complete residential system can cost anywhere from $25,000 to $35,000 with installation. This doesn’t factor in tax credit savings or what you could save with your new solar panels generating some or all of your electricity.
|Northwest||$12,800 to $19,700|
|West||$13,700 to $17,500|
|Southwest||$10,900 to $16,300|
|Midwest||$11,900 to $17,200|
|Southeast||$10,800 to $17,400|
|Northeast||$12,400 to $19,200|
Here’s a look at the projected annual savings for a 5 kW system over selected states in different regions.
|State||Estimated annual savings on electricity|
The federal solar tax credit or investment tax credit (ITC) is 30% of the cost of installing a solar energy system through 2019. Past 2019, the ITC drops to 26% in 2020, 22% in 2021 and finally 10% from 2022 onwards.
States offer several types of incentives including: performance-based incentives (PBIs), solar renewable energy certificates (SRECs), state tax credits and cash rebates.
Some examples of state tax credits include:
Solar power can be a great investment for your home and for the environment. Tax credits, reducing your reliance on the utility and potentially selling back to it can all lessen the financial burden if you’re able to make the initial plunge.
Your best funding option will depend on what you want out of your new system, how much equity you have in your home and how long you want to repay the loan. Carefully consider your needs and compare your loan options before committing.
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