Solar Financing: Loans, Leases & PPAs

Overview of Solar Financing Options

You do not need $15,000 to $20,000 in cash to go solar. Multiple financing options make solar accessible to homeowners at every budget level. The three main approaches are cash purchase, solar loans, and third-party ownership through leases or power purchase agreements (PPAs).

Each option has distinct advantages and trade-offs in terms of upfront cost, long-term savings, ownership, and tax credit eligibility. Let us compare them in detail.

Option 1: Cash Purchase

Paying cash for your solar system delivers the highest total savings and the best return on investment.

How It Works

You pay the full cost of the system upfront, own the equipment, and receive all financial benefits including the federal ITC, state incentives, net metering credits, and SRECs.

Financial Example

System cost: $18,000

Federal ITC (30%): -$5,400

Net cost: $12,600

Annual electricity savings: $1,800

Payback period: 7 years

25-year savings: $32,400 (after accounting for the initial investment)

Pros

Highest total savings over the system lifetime

You own the system and all incentives

No interest payments

Increases home value by the full system cost

Cons

Requires significant upfront capital

Money is tied up in the system until you reach the payback period

Opportunity cost compared to investing that money elsewhere

Option 2: Solar Loan

Solar loans are the most popular financing option, combining the benefits of ownership with no money down.

How It Works

A lender provides the funds to purchase your solar system, and you repay the loan over 10 to 25 years with monthly payments. You own the system from day one, which means you can claim the ITC and all other incentives.

Types of Solar Loans

Secured loans: Use your home as collateral, similar to a home equity loan. They offer lower interest rates (4 to 7 percent) but carry the risk of foreclosure if you default.

Unsecured loans: No collateral required. Interest rates are higher (6 to 12 percent) but your home is not at risk.

Dealer-arranged loans: Many solar installers partner with lenders to offer in-house financing. These are convenient but compare rates to ensure competitiveness.

Financial Example

System cost: $18,000

Federal ITC (30%): -$5,400 (applied to loan balance or kept as savings)

Loan amount: $18,000 at 5.5% for 15 years

Monthly payment: $147

Monthly electricity savings: $150

Net monthly cost: Essentially $0 from day one

Pros

No money down

You own the system and receive all incentives

Monthly loan payments are often less than or equal to your electricity savings

Increases home value

Cons

Interest increases total cost compared to cash purchase

You are responsible for maintenance (though this is minimal)

Loan appears on your credit report

Option 3: Solar Lease

A solar lease lets you host solar panels on your roof without owning them.

How It Works

A third-party company installs, owns, and maintains the solar panels on your roof. You pay a fixed monthly lease payment, typically $50 to $150, in exchange for using the electricity the panels produce. The lease company claims the ITC and other incentives.

Financial Example

Upfront cost: $0

Monthly lease payment: $100

Monthly electricity bill reduction: $130

Net monthly savings: $30

25-year savings: $9,000

Pros

No upfront cost

No maintenance responsibility

Predictable monthly payments

Simple and straightforward

Cons

Lower total savings than owning

You do not receive the ITC or SRECs

May complicate home sales (lease must be transferred or bought out)

Lease payments typically escalate 1 to 3 percent per year

No increase in home value from the solar system

Option 4: Power Purchase Agreement (PPA)

A PPA is similar to a lease, but instead of a fixed monthly payment, you pay for the electricity the panels produce at a set per-kWh rate.

How It Works

A third-party company installs and owns the panels. You agree to purchase the electricity they produce at a rate lower than your utility rate, typically $0.10 to $0.18 per kWh. The PPA company handles all maintenance.

Financial Example

Upfront cost: $0

PPA rate: $0.12/kWh (vs. utility rate of $0.17/kWh)

Annual solar production: 10,000 kWh

Annual cost: $1,200 (vs. $1,700 from utility)

Annual savings: $500

25-year savings: $12,500

Pros

No upfront cost

You only pay for electricity produced

Rate is lower than utility rate

No maintenance responsibility

Cons

Lowest total savings of any option

You do not own the system or receive incentives

PPA rates typically escalate 1 to 3 percent annually

May complicate home sales

Not available in all states

Side-by-Side Comparison

| Feature | Cash | Loan | Lease | PPA |

|---------|------|------|-------|-----|

| Upfront cost | $12,600 (after ITC) | $0 | $0 | $0 |

| 25-year savings | $32,400 | $22,000-$28,000 | $9,000 | $12,500 |

| Own the system | Yes | Yes | No | No |

| Receive ITC | Yes | Yes | No | No |

| Maintenance | Owner | Owner | Lessor | PPA company |

| Home value increase | Yes | Yes | No | No |

Which Option Is Best for You?

Choose cash if you have the savings and want to maximize your return on investment.

Choose a solar loan if you want to own the system and receive all incentives without paying upfront. This is the best option for most homeowners.

Choose a lease or PPA if you want the simplest possible experience with no ownership responsibilities and are comfortable with lower overall savings.

Regardless of which financing option you choose, the first step is comparing quotes from multiple installers. SmartEnergyUSA connects you with pre-vetted solar companies who can walk you through all financing options. Get your free quote today and explore which path to solar works best for your budget.