How Do Solar Loans Work?

What is a solar loan?

A solar loan is a type of financing agreement for people who want to invest in renewable energy installations.

Solar loans are structured to offer financing up to 100% of the solar system price. Terms usually range from five to 20 years, with monthly payments designed to be manageable.

How a solar loan works

Once your loan is approved and the solar panels are installed, you’ll make fixed monthly payments, just like with any other type of loan.

In the best-case scenario, your loan payments are less than your current electric bill.

Interest rates depend on your credit, the lender and whether the loan is secured or unsecured, but they’re often lower than credit card rates.

If you have a high credit score and are otherwise qualified for a solar loan, you may qualify for a low interest rate without pledging collateral.

Credit score requirements for solar loans

You should generally have a credit score of at least 600 or 650 to qualify for solar panel financing. Vendors and financial institutions want to ensure you are in a strong financial position to repay the loan.

Credit score requirements vary by lender.

Getting a solar loan with poor credit is possible, but it typically comes with higher interest rates.

If you have a low credit score, thin credit or insufficient income, a secured loan may be the best way to qualify for solar financing.

Initial costs may still be high

Solar loans are an excellent way to reduce upfront costs, but you may still need a down payment. If cash isn't available, choose a solar panel vendor or lender that doesn't require an upfront investment.

» COMPARE: Best solar financing companies

Types of solar loans

There are two main types of solar loan products: secured and unsecured.

The biggest difference? Secured solar loans trade lower rates for higher risk to your equipment, while unsecured loans protect your panels but usually cost more over time.

Secured solar loans

A secured loan uses an asset as collateral. With solar loans, the panels and equipment serve as that collateral — if you don’t repay, the lender has the right to reclaim them.

Common types of secured solar loans include:

• Home equity loans/HELOCs: Use the equity in your home, often with lower interest rates, but your home is at risk if you default.
• PACE loans: With Property Assessed Clean Energy loans, repayment is added to your property tax bill. These are only in certain states and counties.

Pros and cons of secured solar loans

Unsecured solar loans

An unsecured loan doesn’t require collateral but may come with higher interest rates and stricter borrower qualifications. If you default on the loan, the lender can’t repossess the panels. Instead, it has to go through the collections process.

• Personal solar loans: Offered by banks, credit unions and online lenders. They usually have fixed interest rates and shorter terms than secured loans.
• Solar-specific loans: Some lenders specialize in renewable energy loans with tailored terms.

Pros and cons of unsecured solar loans

What to know about dealer-arranged loans

Dealer-arranged loans offer convenience and quick setup, sometimes with promotional low-interest periods. However, rates may increase after the promotional period, and you'll have less flexibility in choosing terms.

Pros and cons of dealer-arranged solar loans

Solar loans vs. PPAs and leases

Solar leases and power purchase agreements (PPAs) also let you have panels installed on your home without paying a lot upfront.

The difference comes down to who owns the panels. Solar loans let you own the system and pay it off over time. But leases and PPAs mean you don’t own the panels.

Monthly solar lease payments range from $150 to $250

Instead, you pay a monthly fee (lease) or pay for the power they produce (PPA). Both can be good options if you want to go solar with little upfront cost. 

Solar leases are more common than PPAs. Lease agreements typically last 15 to 25 years, with predictable payments that can be lower than your utility bill. You don’t get the federal solar tax credit, but you still save on electricity costs. 

How financing vs. leasing solar panels has changed in 2025

For years, buying solar made the most sense thanks to the federal solar tax credit. But under President Trump’s One Big Beautiful Bill Act, that credit ends after 2025. This is closing the gap between buying and leasing.

2025 is the last year homeowners can claim the 30% federal solar tax credit.

Starting in 2026, buying panels will cost about 30% more out of pocket since you’ll pay full price without federal help. Meanwhile, third-party-owned systems (leases and PPAs) can still use the Section 48E credit, but only if they increase the use of U.S.-made components.

» MORE: Lease or buy solar panels?

Is a solar loan right for me?

Solar panel loans can be excellent if you want to own solar panels with minimal upfront costs.

And with a good solar panel system, the utility savings can make up for the financing costs. For instance, Kenrick in New Jersey said their solar loan “is paid from monthly savings on electric bill.”

However, not all experiences are positive. That’s why it’s essential to understand the long-term financial implications of taking out a loan before making any commitments.

Why financing solar panels makes sense

The cost of solar panels typically ranges from $5,000 for a small setup to $40,000 or more for a full home array. A solar loan lets you spread this cost into manageable monthly payments.

• Lower upfront costs: Loans can make solar panels more accessible to financially strapped households by lowering the initial investment.
• Competitive interest rates: Because many solar loans are secured by the financed panels, interest rates may be low, often between 3.99% and 16.99%.
• Equipment ownership: In contrast to solar leases, loans let you purchase solar panels and related equipment. This means you can benefit from tax credits, and you own the equipment outright once you pay off the loan.

What to look out for: hidden costs and pitfalls of solar financing

For many homeowners, solar loans shift financial risk onto them — fixed payments continue regardless of whether the panels deliver. When production underperforms, warranties fail, or customer service breaks down, the loan feels less like a path to energy independence and more like a trap.

Installing solar panels can help you save money on your electric bill, but interest rates can cut into these savings.

Depending on the lender and type of financing, solar loans may come with strict lending requirements. This is especially true for unsecured loans, where the lender assumes more risk.

Real-world examples

Melinda in California took out a $64,700 loan at 8.99% in 2023. Two years later, her solar system has never worked. In scenarios like this, the borrower is locked into a financial obligation even when the product (working solar) never materializes.

Similarly, homeowners like Joseph in Oregon calculate ROI based on promises of bill elimination. When production falls short, the loan payment can erase any utility savings, leaving them worse off than before. “Despite substantially lower grid consumption (~55%), my total cost is higher by $155.19 over the same three months,” Joseph told us.

» COMPARE: Best solar companies

FAQ

Bottom line: How does a solar loan work?

A solar loan lets you install panels with little to no upfront cost and pay them off monthly while potentially saving on your electric bill. With competitive interest rates and low upfront costs, solar loans provide an accessible financing option for homeowners who want to go solar on a budget.

However, it's important to understand all associated fees and risks before committing. Research thoroughly, compare offers, and speak with financial professionals to understand the potential benefits and costs. When properly considered, a solar loan can be an excellent way to make an energy upgrade while keeping costs manageable.