The bright side of high-interest solar loans

Solar loans with high interest rates are increasingly offered with much lower fees, which is making loans with higher interest rates more affordable than they may initially seem, according to EnergySage Intel's latest Solar & Storage Marketplace Report.

While a low interest rate is a welcome sight for most borrowers, it doesn’t always translate to the lowest overall cost. It’s important to look at the annual percentage rate (APR) on your loan, which considers all of the fees, closing costs, and your interest rate together to determine the actual cost of the loan.

A loan with a higher interest rate but lower fees may actually be cheaper than one with a much lower interest rate, and can often be more affordable over time.

Especially when it comes to solar loans: That’s because solar loans often come with hefty solar fees meant to cover administrative and risk-related expenses, and they’re typically front-loaded, nonrefundable, and can't be offset through refinancing or early repayment like interest can. As a result, even though it's counterintuitive, low-fee, high-interest loans actually tend to offer greater flexibility and long-term savings potential.

Stay informed on the latest industry news—delivered to your inbox each month. Sign up for EnergySage’s newsletter.

As the solar market matures, both solar shoppers and installers are starting to recognize that a higher interest rate isn’t necessarily a bad thing. In the second half of 2024, the most quoted loan product carried an interest rate of 8.49%, and three of the four top loan providers on the Marketplace were low- or no-fee lenders.

Sixty percent of solar loan quotes on EnergySage featured interest rates of 6% or higher in the second half of 2024. The most frequently quoted loan product during this period carried an interest rate of 8.49% and a 20-year term, emphasizing the continued prevalence of high-interest financing.

Although the median quoted interest rate declined slightly from 7.49% in the first half of 2024 to 7.24% in the second, rates have more than tripled since 2022. This rise has been largely driven by increases in the Federal Reserve’s federal funds rate in recent years, but changing lender strategies have also played a role. Specifically, there’s been a growing shift toward high-interest, low-fee loan options—an evolution that can work in the customer’s favor.

“We’re seeing more low-to-no dealer fee products being pushed in the market, and those tend to have higher annual percentage rates,” Zoe Gaston, principal analyst of U.S distributed solar at Wood Mackenzie, shared with EnergySage. “More companies like Climate First Bank are entering the market focused on this, and there’s more customer awareness around high dealer fees.” 

Low-fee loans—defined as those with fees of 3% or less—made up 47% of solar loan quotes in the second half of 2024, up from 40% in the first half of the year. Three of the top four loan providers offered low-fee options, contributing to this growth. At the same time, the average fee across all quoted loans dropped from 13% to 12%.

Lower interest rates typically make borrowing more affordable, but with solar loans, there’s another key factor to consider: dealer fees.

The lower interest rates of years past were often tied to high fees that could drastically increase the cost of the loan. While a low-interest loan might seem like the best deal, it isn’t always the most cost-effective option in the long run.

The average homeowner on EnergySage pays off their solar loan in about seven years, so even if you have a high interest rate, it’s likely you won’t be paying that rate for a full 20-year loan term, which means you’ll see greater savings and an earlier break-even period. When you pay a high dealer fee, even if you pay off your loan early, there’s no additional financial benefit because you can’t recover the sunk cost of that fee the way you can avoid paying more interest over time. That’s why low-fee, high-interest loans often give homeowners more flexibility: They can pay off the loan early or refinance later to reduce overall interest costs.

As the solar financing market matures, more homeowners are recognizing the advantages of these low-fee, high-interest products. In turn, more installers are quoting them, shifting the landscape toward more flexible financing options.

“Solar has a bad reputation because of things like hidden dealer fees, but most installers want the best for their customers,” Dema Headley, director of digital banking at Climate First Bank, told EnergySage. “More and more installers are offering ethical financing options to be completely transparent with borrowers.”

Low-fee loan products don’t negate the effect that today’s high interest rates have on dampening demand. According to Wood Mackenzie, 39% of residential solar installations were purchased with a loan in the second half of 2024, down from 57% in 2023. While low-fee, high-interest solar loans can be a better financing option than high-fee, low-interest products, persistently high interest rates have made borrowing money to go solar more expensive. 

While nothing is set in stone, interest rates are projected to remain high for the foreseeable future despite this year’s economic turbulence. 

Interest rates tend to fall during economic downturns, but not always

The U.S. gross domestic product (GDP), a measure of economic growth, decreased by 0.3% in the first quarter of 2025—the first quarterly decline since 2022. The Trump administration’s tariffs were the primary driver of the contraction. 

The full effect of the new tariffs on the economy remains to be seen, but it’s forecasted to get worse before it gets better. The Federal Reserve has historically responded to economic dips by cutting interest rates. However, the Fed held rates steady at its May meeting, citing risks of higher inflation and higher unemployment due to the Trump administration’s latest trade policies. 

“At the beginning of the year, I assumed interest rates would be cut once this year,” Gaston said. “But based on how things are going, I’m assuming a rate cut probably will not happen.”

Low-interest solar loan products are probably too good to be true

It remains to be seen whether the Fed will cut interest rates at all this year, but for now, it’s safe to assume we’ll stay in high-interest times; if you see a loan with an extremely low interest rate, that’s a signal you should look closely at all of the fees and additional costs associated with the loan. Solar loans with below-average interest rates may not be as cheap as they might seem if they also come with a dealer fee attached.

“With dealer fees, you’re essentially paying interest upfront, and then paying interest on top of that,” Headley explained. “We encourage customers to receive multiple quotes and always request the cash price for each. That’s the benchmark—it’s how you can truly identify whether a loan includes hidden fees.”

You can’t refinance high dealer fees

Interest rates fluctuate over time, which means that even if you have a high interest rate on your loan right now, as long as your lender allows it, you can refinance when interest rates eventually come down. But dealer fees are another story—they’re a sunk cost you can’t recoup. In today’s economic environment, low-fee, high-interest products offer a higher degree of flexibility, transparency, and the potential for long-term savings, making them a surprisingly smart choice, even if the interest rate seems high at first.