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Is It Better To Buy or Finance Solar Panels?

Installing solar panels is one of the best decisions that homeowners can make. After deciding on solar panels, though, there's one more important decision: Are you buying your solar panels outright or financing them?


It is better to finance solar panels because it lessens the upfront costs of solar panels and replaces an electricity bill with a payment that will eventually go away. Financing solar panels also allow you to benefit from government incentives, which will make them even more affordable.




A solar loan makes solar panels so much more accessible, especially with dedicated solar-financing companies like Mosaic available. Whether you choose to buy or finance your solar panels will ultimately come down to your own personal financial situation and preferences, but most homeowners that choose to finance their system end up saving so much money on their electricity with their system that their total monthly costs don’t even go up.


This means that when you finance, you’re essentially swapping out one bill for another. The only difference is that making payments on your solar panels will improve your credit and it will eventually go away. If you stick with pure electricity, you’re stuck with that bill for life.


Buying solar panels outright does have advantages too, though. Paying cash outright makes the process very simple. Financing can get complicated and add a bunch of paperwork and even require more approvals on occasion.

However, it also means a huge chunk of money will vanish from your wallet all at once. I’ll cover the pros and cons of each option below and answer some common questions about them.


Pros And Cons Of Buying Solar Panels


The pros and cons of buying solar panels outright (and not financing them) are:


Pros of Buying Solar Panels:

  • Lower long term costs. No interest payments or late fees.

  • The process is much simpler than financing since you don’t have to deal with finding a lender or working out monthly payments / interest

  • Full control of system design. Sometimes lender approval is required for system design and upgrades

  • Immediately reap the benefits of your system and start saving money since none of the savings will be put to paying off the loan

  • Don’t have to deal with credit or credit scores

Cons of Buying Solar Panels:

  • Much higher upfront cost

  • The interest paid on loans for solar panels may be tax-deductible, so you may miss out on some tax benefits (but you may still qualify for some credits)

The main advantages to buy solar panels outright are the long-term savings you get. You will immediately start to save money on your electricity bill because none of the money you earn is being put back into the loan payment. Loan payments can absolutely eat up savings, depending on the contract.


If you have good credit, you may be able to find personal loans to purchase solar panels, in which case financing your solar panel installation may be more viable and earn you money even while you’re paying the loan back. So it’s okay to shop around a bit to help yourself decide which is better for you.


How Long Does It Take To Get Your Money's Worth On Solar Panels?


You will get your money’s worth on solar panels in about 10 years. On average, it can take 9 - 12 years to make your money back on solar panels.


There are many factors to weigh when coming up with a timeline, including your locality, your home’s location, the layout of your roof, and how much solar power your solar panels generate.


Some people can make their money back on solar panels in as little as 6 years. There are just so many factors that go into the timeline.


The good news is that during initial inspections and system designs, your solar company will be able to help you with an estimate of the cost of solar equipment and installation. Your solar company should also be able to provide options for solar panel financing and a rough idea of local solar rebates and tax credits.


No matter what, though, you are most likely going to see returns on your investment a lot sooner if you buy your system outright. If you finance your system, depending on the terms, you may not actually see any returns until the system is entirely paid off.


Either way, you will eventually see a return on your solar panel installation, but buying your system outright is the quickest way to get your money back and then some!


Pros & Cons Of Financing Solar Panels


The pros and cons of paying for solar panels with financing are:


Pros to Finance Solar Panels:

  • Much lower upfront cost than purchasing solar panels outright

  • There are usually tax deductions available for the interest paid on solar panel loans

  • If purchasing solar panels outright would use a significant portion of your savings, it may be better to pay for them in more manageable chunks with financing.

Cons to Finance Solar Panels:

  • Higher long-term costs thanks to interest payments.

  • You won’t actually start saving money on your energy bill until you pay off the loans

  • Loans may require a good credit score and your interest rates will likely depend on your credit score

  • Some lenders may want to approve the system design and any upgrades you make to the system, giving you less control over it

The main con of financing a solar panel system is the extra money you’ll spend on interest on your solar loan. If you get a 5% interest rate on a $20,000 system, then you’ll end up paying approximately a total of $33,000 over the course of 20 years. So, buying the system outright will save $13,000 in the long run.


Buying the system outright also means that you will not have the money you spent on the system available for everything else you may want to buy.


Whether it’s investing, home repair, etc., by financing, you can actually spend your money how you want while taking care of a manageable monthly payment. It’s also important to note that financing means you’ll be building your credit score as well, which is always nice.


Financing is great if you don’t want to spend a huge chunk of money all at once. You can save the money you would’ve spent up front and put it in a rainy day fund, or invest it in something else while you make payments on your system.


In the end, you most likely won’t even notice your financing payments because your solar panels will immediately lower your electric bill. So, you’ll be paying the same amount in bills per month, except your system will eventually be paid off and you’ll be able to reap the benefits entirely.


Ultimately, it all comes down to your personal preference and financial situation, because both options can be optimal under the right conditions.


Is It Worth It To Finance Solar?


Pursuing a loan for solar panels may be worth it because the system will eventually pay for itself and increase the value of the home once it’s paid off. Whether you buy or lease the solar panel system, the savings on the electric bill will make the investment well worth the cost. Buying the system is just faster.


Things only get a little complicated if you ever plan on selling your house. If your lease isn’t paid off when you sell your home, you will need to convince the new buyer to take over the lease. This process can be a bit tedious and even turn off many potential buyers.


If you don’t plan to sell your home in the next couple of decades, though, then financing is a perfectly valid option. You will still make your money back by saving on your electricity bill (although, it may not start to pay for itself until after it’s paid off), and you will start reaping the tax benefits of using a solar system.


Many buyers view financing solar panels as swapping out their energy bill for a loan payment. The only difference is that your loan payment will eventually disappear and you’ll be able to enjoy all of the benefits of your solar system.


Is It Hard To Sell A House With A Solar Loan?


It is hard to sell a house with solar loans because the buyer will need to be willing and able to take over the loan payments. It is not impossible to sell a house with a solar loan, just more complicated and usually requires the seller, buyer, agent, and lender to come to an agreement.


Having a solar power system can be alluring and usually adds a lot of value to the house. However, having a solar lease can make selling the house less enticing. Although there are plenty of buyers out there willing to buy a house with a solar lease, it just generally adds another objection to doing so.


This is why buying a system outright is usually recommended if it is within your means because the entire process is much more simple.


Federal Solar Tax Credit for Homeowners and Business Owners


Disclaimer: This is not financial advice.


The federal government is offering solar incentives due to the growth of clean energy, and one way it does this is by offering tax credits for solar panels. The federal solar tax credit, also known as the Investment Tax Credit (ITC), is a lucrative incentive that can save homeowners and businesses thousands of dollars on their federal tax returns.


How the Federal Tax Credit Works


The ITC allows individuals and businesses to claim a tax credit equal to 26% of the solar panels cost that was installed on their property in 2022, and 30% in 2023. This means that if you spent $10,000 on a solar energy system, you would be able to claim a tax credit of $2,600.


Tip: It may be worth considering taking advantage of the opportunity to save on solar panel installation costs. Who knows how long the federal government plans to keep this incentive around?


Federal Tax Credit Eligibility


The federal solar tax credit is available for both residential and commercial solar installations and applies to both purchased and leased systems. Whether you're a homeowner or a business owner, you can take advantage of this incentive as long as you have a solar energy system installed on your property by December 31, 2023.


Maximizing Your Savings


To maximize your savings with the ITC, it's important to plan ahead and make sure you have all of your ducks in a row before the deadline. This means choosing a reputable solar installation company, getting all of the necessary permits, and making sure your system is properly installed and functioning. You should also make sure to keep all of your receipts and paperwork so that you can claim your tax credit when the time comes.