What is a solar loan?

A solar loan is an unsecured personal loan used to pay for solar panels and installation. Banks, credit unions and online lenders provide solar loans. Typical loan amounts are $1,000 to $100,000, and annual percentage rates are 6% to 36%.

Solar loans tend to be unsecured, meaning they don’t require you to provide collateral. This means your home or solar panels aren’t at risk of foreclosure if you miss payments, but you may have to pay late fees and a higher interest rate.

» MORE: See our picks for the year’s best solar companies

How do solar loans work?

Solar loans are installment loans, which means you receive the money in a lump sum and repay it in equal monthly installments over a predetermined period, typically two to seven years.

» MORE: What to know about solar panel financing

How to compare solar loans

Compare these features to find a low-cost solar loan that fits your budget.

Annual percentage rate

APR represents the total cost of a loan, including interest and any fees. It offers the best way to make an apples-to-apples cost comparison between loan offers and other financing options. The loan with the lowest APR is the least expensive.

Monthly payments

Affordable monthly payments are as important as getting a low rate. Be sure loan payments fit comfortably into your budget, because missed or late payments can negatively affect your credit.

Fees

Some lenders may charge an origination fee of 1% to 10% of the loan amount. For a $30,000 solar loan, for example, this could mean fees of $300 to $3,000. The lender can deduct the fee before sending you the funds, reducing the amount you actually receive.

Repayment term

The length of a loan’s repayment term affects the monthly payments. Some lenders offer extended repayment terms specifically for home improvement projects. Although loans with longer repayment terms have lower monthly payments, they result in higher total interest costs.

» MORE: How to choose the best personal loan term length

How to get a solar loan

1. Get a firm cost estimate. Compare bids from multiple solar panel installation companies. This will tell you how much you need to borrow.

2. Calculate solar loan payments. Use a solar loan calculator to determine what APR and repayment term will get you an affordable monthly payment.

3. Check your rate. Many lenders offer pre-qualification, which lets applicants preview their potential loan rate, amount, monthly payment and repayment term. This usually requires only a soft credit pull, so you can review multiple offers before applying.

4. Apply. Once you accept a loan offer, the lender may require documents to verify your employment, income, address and other information. Have your W-2s and tax documents ready to make the application process go smoothly.

5. Get funded. If approved, expect to receive funds within a few days.

» MORE: How long does it take to get a personal loan?

Solar panel tax benefits

The federal government provides a 30% tax credit to those who purchase and install a new solar panel system in their home by 2032.

For example, if you install solar panels in 2024, you could receive a $6,000 credit on a $20,000 system with the federal tax credit alone.

Tax credits reduce your tax liability and aren't the same as tax deductions or tax refunds. Tax credits work similarly to gift cards: if you get a $6,000 credit, you can apply it to your tax bill to reduce how much you owe by $6,000. And like gift cards, this credit is nonrefundable, meaning if you don’t owe taxes — or owe less money than the tax credit — you won’t get that leftover money back in cash. You can, however, carry any unused tax credit amount to a future tax year.

You can take advantage of tax benefits if you own your system, no matter how you pay for it.

The federal solar panel tax credit decreases to 26% in 2033 and 22% in 2034.

Some states also offer tax benefits and other incentives for solar installation. You can look up your state’s offerings in the Database of State Incentives for Renewables and Efficiency.

Other ways to finance solar panels

Some solar companies offer financing through third-party lenders. These loans can be similar to personal loans — unsecured with no down payment required. The payment plans could have lower rates and longer repayment terms than personal loans, making your monthly payment lower.

Compare a quote from a solar company with other options to find the least expensive one.

If you know how much your solar panels will cost, you can apply for a fixed-rate home equity loan. These loans usually have lower rates and longer repayment terms than unsecured loans because putting up your home as collateral lowers the risk for a lender.

» MORE: Best home equity loans

A HELOC is another low-rate option that is secured by your home. It’s more flexible than a home equity loan because you can draw on funds as you need them, and you often have the option to pay only interest during the initial phase of the loan. Unlike personal and home equity loans, HELOCs have variable rates.

» MORE: Best home equity lines of credit

A cash-out refinance is a second mortgage that’s larger than your current mortgage. You use the new loan to pay the old loan and “cash out” the difference to purchase solar panels. It can be a good option if current mortgage rates are lower than what you’re paying and if you can keep closing costs low.

Closing costs can be 2% to 5% of the mortgage’s cost. That means a $350,000 mortgage can have $17,500 in closing costs — more than half the cost of installing a new solar panel system.

» MORE: Best cash-out refinance lenders

If you don’t want to make a large upfront payment or are ineligible for federal and state tax credits, consider a power purchase agreement or leasing solar panels.

In both cases, you pay little or no upfront costs to essentially rent and use the solar panels. The owner of the panels collects payment from you, as rent or through usage, and receives federal tax credits or any available tax incentives from the government.

The U.S. Department of Energy has more details about the difference between a lease and a power purchase agreement.

» MORE Tax credits for solar panels

Are solar panels a good investment?

Here’s how to determine whether solar panels are worth the investment:

Calculate your sun exposure, costs and savings. Solar panels will help people in some parts of the country save more money than others. For example, someone in Seattle might not get the same value from solar panels as someone in Phoenix because of the disparity in sunshine.

To estimate your savings, you first need to know how many kilowatt-hours you use and how much you’re paying for them. In 2022, the average household used 899 kilowatt-hours each month, according to data from the U.S. Energy Information Administration. In June 2024, residential customers paid an average of 17.8 cents per kilowatt-hour.

Then, figure out what size system you’ll need. You can use a solar savings calculator to see how many panels your home would need and how much energy they would generate.

» MORE: Are solar panels worth it?

Estimate your payback period. Your solar loan payback period is the time it takes for your electric bill savings to match the cost of installing the system. This will be years, not months.