Four Most Common Financing Options for Solar Power in New Mexico
Going solar isn’t cheap. Sure, the federal solar tax credit and other regional tax incentives subsidize good chunk of the cost. And, over time, you’ll make back your invest with your energy savings, and then some.
But how do you come up with the money to pay for solar panels in the first place? There are four ways people commonly do it—and none of them are a one-size-fits-all option. It just depends on your goals and your current financial situation.
In this blog, we’ll break down the 4 common financing options for solar and share some of the pros and cons along the way. These ways are:
- A personal loan
- Financing for solar panels
- Solar lease with a Power Purchase Agreement (PPA)
As we dive into it, just keep in mind that you have options! And if you talk to any solar salesperson that tells you otherwise, that’s a red flag!
Get a Personal Loan
Unless you have the cash available, your first thought might be to finance solar installation with a personal loan. This might feel like the most straightforward option to you because you can walk into the deal with cash in hand and handle the payments on your own terms.
You may already have a great relationship with your local credit union, or you may consider taking our a home equity loan or refinancing your house to take out cash. There are number of ways you can get your hands on a personal loan.
The main pro is that you may be able to avoid dealer fees that are typically associated with solar financing. You’re also more likely to be able to take advantage of fixed monthly payments.
One of the main disadvantages that we will get into a bit more is that personal loans often have a higher interest rate, which means you could end up paying more money over the life of the loan, and your monthly payment is higher.
Home equity loans as a means for getting a personal loan
Another advantage if you’re taking out a home equity loan or doing a refi is that you can take out even more money to do other home improvement projects at the same time. Home equity loans also gives you the flexibility to be approved for a certain amount, but you only end up paying interest on the amount that you spend. This gives you more flexibility if the cost of the project changes for some reason. In this way, you can avoid having to pay interest on extra cash that you ended up taking out before you knew the exact cost of the project.
Which banks are best for personal solar loans?
Credit unions are typically going to offer better loans than a bank. You’ll experience a more personalized approach, can typically get a loan more quickly and easily, and in many cases, you’ll end up with a lower interest rate than with a bank.
You’ll have an even smoother process if you already use that credit union and have established a good relationship with them, including having a good credit score. To that point, any bank that you’re already in good standing with is a better place to get a loan than a place you don’t have any history with—if you’re going the personal loan route.
Nusenda Credit Union Solar Loans
Here in New Mexico, many solar customers like Nusenda Credit Union for solar loans. They are a local credit union with their own solar loan and renewable energy program. Their program offers that,
“To help you take advantage of their energy-saving products and services, our merchant partners will assist by answering your questions; walking you through an easy online application; and managing both the loan process and funding — so you’ll be reaping the financial benefits quickly and simply.”
Do credit unions have high interest rates?
Credit unions are usually a good middle ground when it comes to interest rates. They typically have lower interest rates than a bank, but they’re also going to have higher interest rates than solar financing options, which we will talk about shortly. Of course, any interest rate is going to be specific to a few factors—mainly, the current market and your credit score.
Can you negotiate interest rates with credit unions?
You definitely can negotiate interest rates with a credit union. At the end of the day, they don’t want to lose you business to a bank. One way to get a lower credit rate is a secured loan—which means offering an asset as collateral if you default on the loan. Another way to get a lower rate is to just shop around a bit so you know what is available to you and use that as leverage.
Use Financing for Solar
The next option to finance solar panels is to use solar financing options. These are the loans provided by solar companies that are specific to solar and often come with a variety of terms, including dealer fees. Solar salespeople will present prospective buyers with a financing option during the sales process.
What’s the difference between personal loans and solar loans?
Truthfully, considering the amount paid out over the life of the loan, there isn’t that much difference between solar loans and personal loans. But, there many be some reasons to choose a solar loan.
A big advantage is that while there may be a dealer fee, the interest rates are usually lower than a personal loan. The reason why we say there isn’t that much of a difference to you, however, is that the bank is going to make their money one way or another.
So whether that is through a higher interest rate and a lower principal amount, or a lower interest rate and a higher principal amount, you’ll pay a similar amount over the life of the loan. (We go into this in more detail in this blog if you’re interested.)
There are a few factors when getting a solar loan or a personal loan really matters. The first would be if you plan to move in the next 10 years or so.
Obviously, a home buyer is not going to take on the debt of personal loan, so you’ll be left to your own devices to pay that off. On the other hand, a personal loan would allow you to offer the panels free and clear with your home, without any attachments. If you have a solar loan, you can decide if you want to pay off the loan with proceeds from your home sale, or negotiate for the buyer to purchase the solar panels from you.
Another factor that would play into choosing a lower principal loan (typically the personal loan) would be if you know you’ll be coming into a few chunks of cash and you’ll be able to pay off the loan quickly in a few big blocks. In this case, it would make more sense to go with the higher interest/lower principal loan rather than a lower interest/higher principal loan.
Pay for Solar with Cash
For many people, solar panels are a large enough investment that paying for a solar energy system upfront, with cash, isn’t necessarily an option. But if it is for you, that’s great! There are obvious advantages to paying in cash—the biggest one being that you won’t have to pay interest so you’ll be experiencing the return on your investment much more quickly.
Without a loan payment to take over, your utility bill will all but disappear, especially with the great net metering programs we have here in New Mexico.
And, those who pay in cash for solar panels can still take advantage of the federal tax credit, meaning you will get 30% of the value of your solar panel system and installation back on the following year’s tax return.
Lease Your Solar Panel System with a Power Purchase Agreement (PPA)
While paying with a personal or solar loan, or paying in cash means that you will end up owning your solar panel system, there is another option available—leasing your solar panel system through a power purchase agreement.
We covered the pros and cons of leasing solar panels in depth in this blog. But the highlights are, leasing makes going solar more accessible to those who can’t secure financing. It also provides the flexibility to move and transfer the lease to your home buyer. Leasing is a no-money-down, no maintenance way to reduce your environmental footprint.
When I have a solar lease, do I own my solar panels?
Just like leasing a car, the main disadvantage of a solar lease is that you are not gaining the solar panels as an asset. In other words, you do not, and will not, own the solar panels. And while power purchase agreements are transferable, not all home buyers see this as a positive thing. If they don’t want to take on your lease, it could complicate the sale of your home if you move during the terms of your solar lease.
When is the right time to consider a solar lease?
From our perspective, while it’s an option to take advantage of if you are passionate about sustainable energy but can’t qualify for any type of loan, it doesn’t make a ton of sense. Make sure you read the fine print and really know what you’re getting into before agreeing to a power purchase agreement.
Is it worth it to finance solar panels?
If you’re ready to take the plunge and go solar, you’re going to find that it’s well worth it! Beyond the federal tax credit and other local tax credits, you’ll get your energy bill down to next to nothing, and you’ll reduce your environmental footprint. And, there are many ways you can pay for it, there is likely a way that will work for you. So during the sales process, ask questions and know what your options are!
You can get a personal loan, take advantage of solar panel financing offered by your solar salesperson, pay in cash, or even lease a solar energy system.
We’ve linked a few of our resources throughout this blog, but if you want to learn more about leasing versus buying, and important questions to ask your solar salesperson, go check out our full blog. And if you want to sit down with our sales specialist and talk about getting a solar panel system for your home, give us a call at (505)560-3570.