Should You Finance or Lease Solar Panels for Your Home?

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Who doesn’t want to save the planet and maybe save a little money along the way? One way to chip in and do your part is by changing where you get your electricity on a day-to-day basis. Instead of using traditional electricity to power your home, you can look into greener alternatives like solar panels.

These systems used to be very expensive, however, as more people have moved into the market, the pricing on these sun-gathering energy collectors has come down rapidly.

On top of decreased costs at the time of purchase, solar panel systems can actually have a profitable return on investment. Here are some of the costs and benefits you should take under consideration before making the plunge.

Cost of solar panels

When figuring out upfront costs, you’ll want to account not just for the panels, but also for their installation. The national average cost to purchase and install a solar panel system is $3.50 per watt, with the average American home requiring a 5,000 watt system. That means that the average upfront investment is $17,500.

The price for your power system may vary your particular home in your state. You should, of course, do local research, but we’ll go with the national average for the purposes of our calculations.

The Federal government offers a 30% tax credit for the installation of solar or wind systems at residential properties, so this will effectively bring the average cost down to $12,250. On top of federal tax credits, also do some research for state and local tax credits or programs that can further bring down costs.

Over the life of your solar panels, which will likely be between 25 and 40 years, you will have to perform regular maintenance. National averages for this cost come out to a little over $20 per year.

You will also want to call your insurance provider to see what will happen to your homeowner’s premiums. In many cases the costs stay the same or even go down as those who are eco-conscious enough to install solar panels are currently viewed as more responsible than the general populace. The rate cut is even more likely if you have the panels set up in your yard rather than on your roof. Some insurers will raise rates, though, because of the added load to the structure when panels are installed on the roof.

Benefits of using solar panels

If you’re going to spend about $12,500 on a solar panel system and then pay at least $500 in maintenance over the term of its life, warm and fuzzies about saving the planet may not be doing it for you. You’ll want to know there’s a return on investment.

Producing solar power is not inherently cheaper than using regular electricity at this point in time. When you purchase your solar panels, you are essentially paying for your electricity for the next 25 to 40 years up front. Depending on where you live, this may or may not be cheaper than actual costs of electricity.

However, one beauty in making this investment is that you can actually sell off any excess energy you generate.  Those that deliver electricity have to meet certain quotas of green energy per month. They do this less often by generating green energy themselves, and more often by buying green electricity from others.

That green energy is bought and sold via Renewable Energy Certificates, or RECs. When you generate 1 megawatt-hour in excess of what you actually use, you will be issued a certificate that you can then sell to your local utility company. How much you get for each of these certificates will vary both by geographic location and current market value, but to give you an idea, last year you could get about $200 per certificate in the state of New Jersey.

Financing Your Solar Panels

Don’t have $17,500 up front to invest? Because of the potential savings on energy, depending on your area, and the added bonus of RECs, it may be worth it to finance. (You’ll have to wait until tax season to see that 30% credit from the IRS.)

The government offers Energy Efficient Mortgages to fund these types of improvements. In order to obtain one, you will need to get your home assessed so the government can calculate how much savings the solar panels would provide to you. That way, they know the loan is a good investment.

You can also take out a Home Equity Line of Credit (HELOC) where your home serves as collateral if you are unable to repay your loan. Taking out a HELOC means you have the potential to lose your home if you fall behind.

Another option is personal loans. Here are some of the most competitive lenders in the personal loan industry, all of them providing unsecured lending, so you won’t have to hand over any collateral.

SoFi

SoFi provides unsecured personal loans, currently at a rate of 5.95%-12.99% APR depending on your cash flow and credit history. Loans can be for either 3-, 5- or 7-year periods with no origination fees, and if you lose your job during that time, SoFi may temporarily pause your payments and help you find new employment through its Career Services resources.

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LightStream

LightStream actually provides loans specifically for the purchase of solar panels. Shorter terms of 2-3 years based on our average loan come at a fixed rate of 3.99% for those with excellent credit, and rates increase with your term up to 7.59% on 7-year loans for those with excellent credit. It charges no origination fees.

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Earnest

If you have a credit score of 720 or over, you may want to look into Earnest. It provides personal loans in 1-, 2- and 3-year increments at starting fixed interest rates of 5.25%, 5.50% and 6.00% APR respectively, based on our $17,500 number. These loans also have no origination fees.

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Upstart

Upstart loans do come with an origination fee of 1%-6%, but they are more likely to accept a wider range of applicants than the above lenders. Its interest rates are competitive starting at 4.66% APR, though those with lesser credit scores can end up paying up to 29.99% APR if approved. Upstart’s loans come in three-year terms.

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When to Lease

If you can’t qualify for a personal loan, or simply don’t want to go through the hassle of installation and maintenance, there is hope yet. You don’t necessarily have to purchase your own solar panels in order to turn your house into a green machine.

Many companies now allow you to lease panels. Typically you lease panels for 20 years, with most companies installing and maintaining your panels for free. You pay them a flat monthly fee that will generally increase somewhere between 1.5% and 3% per year depending on your contract. In some years, that will be less than your electric company increase its prices, and in other years it will be more. The national average for annual energy cost increases to consumers between the years of 2003 and 2015 was 3.19%.

The reason companies are able to install and maintain your panels free of charge is that they will be taking all of those tax credits; you don’t get to claim them come April. They will also be benefiting from the sale of any RECs your household generates.

You are likely to save a little money long-term when you lease, and you’ll be making a decision that will help the planet for future generations. Doing so costs very little up front, and you won’t have to deal with any stress related to maintenance over the years.

If you’re looking for an investment that will net you cash long-term, though, buying is the way to go if you can afford it or get your hands on a personal loan with a competitive interest rate. Be sure to do research relative to your local community as far as costs and energy generation goes, as solar panels will be far more financially advantageous in some regions of the country over others.

The post Should You Finance or Lease Solar Panels for Your Home? appeared first on MagnifyMoney.