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  • Case Study: Solar Panel Loan or Lease

    Posted by Todd Filbrun on Wed, Nov 07, 2012 @ 01:00 PM

     

    Adding solar panels to your home is an excellent way to cut down on electricity costs and reduce your environmental footprint. However, these benefits come at a price that is sometimes too high for many homeowners to pay in one lump sum. Luckily, solar leases and loans make is possible to invest in renewable energy systems over time. So how do you know which solar financing method is right for you? Let's take a look at realistic example to compare them both.

    If the solar system you want to purchase costs $25,000, you can get a 20-year term solar lease or loan with no money down. So far these two options seem pretty much the same, but when you break it down further you see that they are in fact quite different.

    Installation

    If you lease your solar panels, the cost of installation is often included, saving you about $2,500. When you buy the panels, you also have to pay for the cost of installation.

    Costs so far:
    Lease - $25,000
    Loan - $27,500

    A solar lease looks pretty good.

    Tax credits and incentives

    However, a solar lease does not allow you to keep your tax credits and other financial incentives like rebates. Say you decide to buy your panels and get a solar rebate of $1,000 and $6,500 in tax credits.

    Costs so far:
    Lease - $25,000
    Loan - $20,000

    The picture has changed significantly; a solar loan now seems like a better deal. Let's take a look at the long-term costs.

    Monthly fees

    A solar lease starts with relatively low monthly payments.  Let's say $160 per month for this example. However, those monthly payments increase a fixed percentage amount each year. The rates vary, but 4% is common. If your monthly payments increased by 4% each year, you would be paying:

    • $187 per month in the 5th year
    • $228 per month in the 10th year
    • $277 per month in the 15th year
    • $337 per month in the 20th year

    On the other hand, a solar loan comes with a fixed interest rate and your monthly payments stay the same for the duration of the loan term. Even if your monthly loan payment is $195, you can see that the overall cost of a solar loan is less than a solar lease.

    Total payments over 20 years:
    Lease - $57,185
    Loan - $46,800

    Interest payments on your loan are also tax deductible, and if you use your tax rebates to amortize your loan, you can reduce monthly payments. A loan also allows you to pre-pay without any penalties.

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