What are the different solar financing options?

Solar loans

“Solar loans allow [you] to finance the purchase of a solar system,” explained Mark Lennox, senior product education manager at Freedom Forever, a solar installation company in Temecula, California. Unlike traditional home improvement loans, solar loans include special incentives for renewable energy projects. A lender provides upfront funding, and you repay over time while immediately reaping the benefit of reduced energy bills.

The less interest you pay, the more money you’ll save over time.

These loans can be secured or unsecured. “Secured loans require collateral, such as home equity, offering lower interest rates but posing a risk of foreclosure if [you don’t make] payments,” Lennox said. “Unsecured loans don’t require collateral but [may] have higher interest rates.”

Many solar loans use a “combo loan” structure with a short-term portion (about 30% of the cost due within 12 to 18 months) and a longer-term portion (remaining balance paid over 15 to 25 years). According to Aaron Nichols, marketing and advocacy specialist at Exact Solar, a solar energy company based in Newtown, Pennsylvania, “This structure helps maximize the tax benefits while reducing the upfront financial commitment.”

Matt Powers, founder of Virtue Solar, a solar installer in Central Virginia, considers solar loans essential to the industry’s growth. “[They] make systems accessible [to] almost anyone [who] can pass a credit check,” he said. But before getting a solar loan, consider the benefits and drawbacks.

» COMPARE: Best solar financing companies

Solar leases

With a solar lease, you can go solar without buying the system. A third-party provider owns and maintains the solar panels while you pay a fixed monthly fee to use the electricity they generate.

Lease terms are usually 20 to 25 years.

“Monthly lease payments are typically lower than loan payments,” explained Lennox. “Since many leases come with fixed pricing or gradual increases, homeowners benefit from predictable energy costs over time.” Lease terms usually run for 20 to 25 years with options to renew, buy the system or have it removed at the end.

This option works well if you can’t take advantage of tax incentives. “A lot of retirees or those without active income can’t monetize the tax credit, so leases are a great way to work around that,” said Powers. The leasing company applies for those benefits and factors them into your overall cost structure. Before signing a solar lease agreement, weigh these advantages and disadvantages.

Power purchase agreements (PPAs)

Power purchase agreements (PPAs) offer a different approach to solar financing. With one, a solar provider installs and maintains the system on your property. You only pay for the electricity it produces at a predetermined rate — typically lower than your local utility rate.

Unlike loans where you eventually own the system, “a PPA provides a way to access solar energy while avoiding ownership responsibilities,” noted Lennox. This arrangement means you benefit from clean energy without taking on debt or paying for system upkeep.

And unlike leases, where you pay to use a solar system, “a PPA focuses solely on the cost of energy,” Nichols pointed out. This means your monthly payments will vary based on how much electricity your system generates (rather than paying a fixed fee). Before committing to a PPA, think about how these benefits and limitations align with your energy goals.

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“Most PPAs lock in rates for 10 to 25 years with annual increases of 1% to 5%. “[This] could reduce long-term savings if utility rates don’t rise at the same pace,” warned Lennox. Always request a year-by-year cost projection from your provider and compare it with forecasted utility rates in your area before signing.

» MORE: What to know about solar PPAs

Choosing the right option

Loans provide the greatest long-term savings but usually require some upfront investment and good credit. “If building home equity and long-term savings is the goal, a solar loan is generally the best option,” advised Nichols.

But if you’re seeking immediate relief from high utility bills with low initial costs, leases or PPAs might be more attractive. Consider these factors before deciding between loans, leases and PPAs.

• Energy consumption patterns: Higher energy usage typically justifies ownership. “More energy savings often translate to faster loan repayment,” said Nichols. But Lennox points out that lower usage could make leasing or PPAs more appealing.
• Home sale plans: Owning your system adds clear value to your property. On the other hand, leases or PPAs can complicate home sales.
• Maintenance responsibility: Leases and PPAs include maintenance. In contrast, loan customers handle the upkeep (though many systems require minimal maintenance).
• Long-term outlook: Loans often provide greater total savings (over the solar system’s lifespan) compared to leases or PPAs, even with higher initial costs.
• Tax benefits: Homeowners who buy systems through loans or cash can claim the 30% federal tax credit and other local incentives. However, those with little to no tax liability may not be able to take full advantage of these credits.

Should you lease or get a PPA?

“Leases involve a fixed payment regardless of energy production,” explained Nichols. “In contrast, PPAs involve paying only for the energy produced, which can lead to different monthly payments.” Choose a lease if you prefer consistent monthly bills over fluctuating seasonal bills.

» MORE: Solar lease vs. solar PPA