Solar Lease Vs Solar Financing: Which Is Better?

Solar lease vs solar financing, so which is better? When investing, we always consider the pros and drawbacks. Similarly, once you’ve decided whether to buy or rent a solar panel, you should make the best decision for your needs.

The solar business offers several innovative funding options for your convenience, including third-party PPAs (Power Purchase Agreements), leasing, and securing a loan on the solar plant.

The primary distinction between Financing versus leasing a solar system is ownership. If you obtain a loan to acquire a solar plant, you will own the system once the debt is repaid. Both leasing as well as financing solar panels have advantages and disadvantages. Some of the key differences between these are listed below.

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What Exactly Is Solar Financing?

Solar Financing refers to a loan obtained to purchase and install solar panels. Loan providers will typically provide zero-down solar loans with various payment arrangements, interest rates, and term lengths.

In most circumstances, the monthly loan payments will be less than your last power bill payment before solar installation.

The advantage of solar loans would be that they enable homeowners to purchase a solar system even though they do not have the cash upfront. This means that the homeowners will acquire solar panels on the roof after the loan is paid off.

However, remember that lenders typically want you to have a decent credit score to qualify for a solar loan.

What Exactly Is a Solar Lease?

A solar lease is like a car lease. The homeowner will not own the solar panels; instead, they are leased from a solar contractor monthly.

In exchange for the leasing payments, the homeowner receives the energy generated by the solar panels to power their home. They will eventually have cheaper electric bills since they will pay less for power than they would at the utility rate.

They usually have lease lengths of 20 to 25 years, and the lease cost is typically cheaper than the homeowner’s previous electric bill.

It will frequently feature a price escalation that shows the amount that the monthly costs will increase each year. When the lease expires, homeowners can choose to have the solar panels removed, purchase the boards at a reduced price, or extend the lease.

Solar power purchase agreements (PPAs) are similar to solar leases because they require no initial payment for installing the panels. More information about the distinctions between solar leasing and solar PPAs may be found here.

Which Is Better: Solar Leasing or Solar Financing?

The solar sector offers several creative finance options. This includes third-party PPAs (Power Purchase Agreements), leasing, and securing a loan on the solar plant, which has aided in mainstreaming solar energy.

Since the cost of solar panel systems has decreased dramatically, many individuals nowadays opt to purchase solar systems upfront or through Financing to get the benefits of solar energy. However, according to recent figures, 70 to 80 percent of individuals still prefer to lease solar panels.

The primary distinction between Financing versus leasing a solar system is ownership. If you obtain a loan to acquire a solar plant, you will own the system once the debt is repaid. You will not be the proprietor of the solar panel system if you lease it.

Both leasing as well as financing solar panels have advantages and disadvantages. Some of the main differences between these two are listed below.

Upkeep and Return On Investment

When it pertains to maintaining a solar system, leasing a solar panel is more advantageous than Financing because you will not have to deal with the headaches of regular repairs and maintenance.

Given the preceding, it is entirely your choice whether to go for a solar lease or solar finance; however, opting for solar Financing can offer you additional benefits and a higher return on investment.

Installing solar panels costs a lot of money. Spending such a large sum for a nil Rs electricity bill sometimes needs to be more convincing. However, there are methods around this, including government subsidies.

Long-Term Savings

Whenever it comes to power bill savings, a solar loan will save homeowners more than a solar lease. Solar leases typically have periods ranging from 5 to 15 years. After that, you will no longer have to make monthly leasing payments and own solar panels! After your loan has been paid off, the panels will keep providing you with free electricity, which will help to offset your utility expenditures.

On the contrary, a lease binds you to monthly bills for the entire 20 or 25-year term. Because the amount you pay on such a lease doesn’t go toward purchasing the system, you no longer save money on your utility bills once the contract expires.

So, whereas a solar lease would save you cash on your electricity bills, the savings will be far lower than if you bought the equipment with a solar loan.

Monthly Payments

Solar Financing and solar leases cut – or in many cases, eliminate – your electricity expenditure. You will, however, be required to pay either a monthly loan payment or a monthly lease. Solar loan payments are typically fixed, which means they will stay the same during the loan’s term.

Solar leases typically feature price escalators, meaning your monthly payments will rise yearly. If the cost of power does not increase in a given year, you may wind up paying more for your electricity bill than you would have without solar.

Incentives and Tax Breaks

Net metering is significant in decreasing utility expenses and is available with both solar loans and solar leases.

However, join a solar lease. You will not be eligible for additional solar incentives and rebates, such as the federal investment tax credit (ITC), Solar Renewable Energy Credits (SRECs), or other utility incentives. Instead, the solar leasing firm receives all the stimuli because they own the system.

You can earn SRECs, and any local utility incentive available in your area if you decide to finance your solar system with a solar loan. This is because you own the solar panel system with a solar loan.

The Time It Takes to Process Financing Applications

Applications for solar leases and PPAs can be approved and executed in a single appointment with the solar company. Solar loans, on the other hand, typically take longer to approve and may require additional administrative steps (such as property evaluations, title searches, and mortgage files) that might lengthen the approval process by several weeks.

Selling A House

Selling a home for a homeowner who leases solar panels can be difficult. The homeowner must somehow buy out the lease, which may be costly, or transfer the lease to the new homeowner. Finding homeowners ready to sign into a solar lease arrangement can be challenging.

On the other hand, selling a solar home can be profitable and simple for homeowners who take out a solar loan. Because solar panels boost property value, solar-equipped homes sell faster and for more money than non-solar-equipped properties.

Remember that if a homeowner obtains a secured home equity line of credit (HELOC) loan, the lending must be paid off before selling the house, as the property serves as security. If an unsecured loan has been used, the home might be sold while the prior owner remains liable for the loan.

Because solar panels increase the value of a home, unsecured solar Financing can be completely paid off with the proceeds from the sale. The new homeowners can then enjoy solar’s advantages without signing a long-term contract or making additional payments.

Prospective home buyers will not have to worry about joining a long-term lease arrangement because homeowners with such a solar loan still own the system and will profit from the solar panels.

Is Solar Financing or A Solar Lease the Best Option for You?

In most circumstances, obtaining a solar loan is preferable to getting into a solar lease. The essential advantage of solar loans is that homeowners will save significantly more money throughout the solar system’s life. In addition, with a solar lease, homeowners can take advantage of solar-powered incentives they would not otherwise be eligible for.

Despite the benefits of Financing over leases, a solar lease may be the best option for adopting solar.

A solar lease may be appropriate for you if:

You do not qualify for the federal solar tax credit.
SRECs are not available to you.
You are not eligible for a solar loan.

To locate the best solar financing solution, seek solar quotations from several installers.

Conclusion

The choice between a solar lease and solar Financing is always an interesting one to make. It’s important to consider all the options to find the best match for your needs. A solar lease generally provides the most cash upfront, while a solar financing option packages additional purchasing incentives with your system purchase.

So, if you’re looking to purchase a solar installation, check out our extensive guide on how these options work and learn more about the special tax breaks available with some leases.