Financing options overview
| Structure | Upfront | Who owns system | Who claims incentives | Notes |
|---|---|---|---|---|
| Cash | High | Homeowner | Homeowner | Max control, highest ROI if you itemize properly |
| Loan | Low–Med | Homeowner | Homeowner | APR, term, dealer fees affect ROI |
| Lease | Low | Third party | Lessor | Fixed payment; review escalators and buyout options |
| PPA | Low | Third party | Provider | Pay per kWh; check starting rate and annual escalator |
Each structure trades upfront cost, ownership, and long-term savings differently. Compare total cost of ownership, not just monthly payments.
Ownership of incentives; escalators; buyout; end-of-term
Cash: You own the system and claim all incentives (federal tax credit, state credits, rebates). Maximum control and highest ROI if you have tax liability.
Loan: You own the system and claim incentives, but pay interest and fees. Compare APR, term, and dealer fees to cash option.
Lease: Third party owns the system and claims incentives. You pay fixed monthly payment, typically with annual escalator (2–3%). Review buyout options and end-of-term terms.
PPA: Third party owns the system and claims incentives. You pay per kWh produced, typically with annual escalator (2–3%). Review starting rate, escalator, and contract length.
Escalators: Leases and PPAs typically include annual payment increases (2–3%). This reduces long-term savings compared to fixed-rate loans or cash.
Buyout options: Some leases allow buyout after a certain period. Review buyout terms and compare to cash purchase.
APR, dealer fees, effective cost of capital
When comparing financing options, consider:
- APR: Annual percentage rate includes interest and fees. Lower APR reduces total cost.
- Dealer fees: Some loans include dealer fees (typically 10–30% of loan amount) that increase total cost. Ask for APR including fees.
- Term: Longer terms reduce monthly payments but increase total interest paid. Compare total cost, not just monthly payment.
- Effective cost of capital: Total cost of financing over the loan term. Compare to cash option to understand financing cost.
Ask installers for APR including all fees, not just interest rate. Compare total cost of ownership across all financing options.
How financing changes ROI vs cash
Financing affects ROI in several ways:
- Interest and fees: Loans add interest and fees, reducing net savings compared to cash.
- Incentive ownership: With leases/PPAs, you don't claim incentives, reducing savings compared to cash/loans.
- Escalators: Leases/PPAs with escalators reduce long-term savings compared to fixed-rate loans or cash.
- Tax benefits: Cash purchases may qualify for tax benefits (depreciation for businesses, tax credits for homeowners).
Cash typically offers the highest ROI if you have tax liability to claim credits. Loans can be competitive with low APR and no dealer fees. Leases/PPAs offer low upfront cost but lower long-term savings.
Checklist: comparing offers apples-to-apples
When comparing financing offers, check:
- Total system cost: Installed price before incentives (not just monthly payment).
- APR including fees: Total cost of financing, not just interest rate.
- Term length: How long you'll make payments.
- Escalators: Annual payment increases for leases/PPAs.
- Buyout options: Can you buy out lease/PPA, and at what cost?
- End-of-term terms: What happens when lease/PPA ends?
- Incentive ownership: Who claims federal tax credit and other incentives?
- Total cost of ownership: Total payments over the contract term, including interest and fees.
Compare total cost of ownership across all options, not just monthly payments. Cash may offer the best ROI if you can afford upfront cost.
FAQ
Is a solar loan better than cash
It depends. Cash offers the highest ROI if you have tax liability to claim credits. Loans can be competitive with low APR and no dealer fees, but interest reduces net savings.
What are dealer fees
Dealer fees are upfront costs added to some solar loans (typically 10–30% of loan amount). They increase total cost but may be rolled into monthly payments. Ask for APR including fees.
Can I buy out a lease or PPA
Some leases/PPAs allow buyout after a certain period. Review buyout terms and compare to cash purchase. Buyout may not be cost-effective if escalators have increased payments.