Solar financing: How do you pay for solar panels?

Interest rates are up, but plenty of affordable solar financing options still exist.

Written by:

Updated Jul 9, 2024

7 min read

Home with solar panels on the roof and a hand holding money in front

There's a reason why more than 2.5 million homeowners have installed solar systems in their homes in the U.S. It's a smart investment that will increase your home's value and save you tens of thousands of dollars in electricity costs.

Solar panel systems typically last for 25 years or more, and offset most or all of your monthly electricity bill. Those savings add up quickly: if you pay $150 per month for electricity today, you'll spend over $65,000 on electricity in the next 25 years. By investing in solar, you can avoid most or all of that future spending on electricity. As with any home improvement or upgrade project, before you install solar panels, it's important to consider all of the financing options available to you and determine which one best suits your needs.

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Long-term electricity costs based on monthly bills

Electricity Spending	10 Year Cost	15 Year Cost	20 Year Cost	25 Year Cost
$50 monthly bill	$6,900	$11,200	$16,100	$21,900
$100 monthly bill	$13,800	$22,300	$32,200	$43,800
$150 monthly bill	$20,600	$33,500	$48,400	$65,600
$200 monthly bill	$27,500	$44,600	$64,500	$87,500
$250 monthly bill	$34,400	$55,800	$80,600	$109,400

What are your solar financing options?

There are three main ways to pay for your home solar system: an upfront cash payment, a solar loan, or through a lease or power purchase agreement (PPA).

If you can’t afford to pay for your system out-of-pocket, solar financing allows homeowners to use products like loans and leases to finance the purchase of a solar system by spreading out the cost over time. A typical 11 kW solar panel system costs about $22,022 in 2024 on EnergySage’s marketplace, not including installation.

The two most cost-efficient ways to pay for your solar system are through a cash purchase or a solar loan.

Generally speaking, these two options are the best way to go solar because you either own your own system right away or by the end of your loan. With a cash purchase, you buy your system for its full cost upfront and have no payments moving forward. If you choose a solar loan, it’s similar to financing a car or paying off your mortgage — you’ll be required to make fixed monthly payments over your loan term, which is usually anywhere from five to 25 years.

The third option for financing a new solar system is to enter into a lease or power purchase agreement (PPA). These options aren’t necessarily a smart financial choice because despite paying tens of thousands of dollars, you still won’t own your solar system by the end of the agreement. For example, if you lease a solar panel system for $100 a month for 20 years, you will have spent $24,000 on solar power over two decades, but at the end of the lease you won't own the system despite spending almost the same amount of money as if you had purchased them.

Cash purchase

Paying for your solar panel system with cash is the best way to maximize your savings from solar. You won’t pay any additional interest like you will with a solar lease, and your electricity costs are taken care of for the next 25 years. You shouldn’t have to pay an electric bill again – or if you do, a very small one. Owning your system outright will insulate you from future electricity rate increases, and you’re eligible to receive all the financial incentives and rebates available to homeowners for going solar.

The main drawback of a cash purchase is that it’s expensive. If you want to buy your system in cash, you'll need to have enough capital available to pay for the system upfront, which can typically set you back between $20,000 to $30,000, not including installation.

Solar loans

Solar Leases and PPAs

Tax benefits and rebates for solar panels

Rebates and incentives are available to help you pay for solar panels, and they can go a long way towards offsetting your costs. The most valuable incentive tends to be the federal solar tax credit, also known as the investment tax credit (ITC), which credits you 30% of the cost of your solar panel system from your federal income tax. The ITC is set to stay at 30% until 2033, after which it’s set to drop to 26%. There's no cap on the value of the eligible system - you can deduct 30% of the total cost of your system no matter how much you paid for it.

State and local incentives are also available depending on where you live. New York, Rhode Island, Iowa, Connecticut, and Maryland are some of the friendliest states for solar tax incentives.

Cash vs. Loan vs. Lease comparison for solar

A cash purchase makes sense if:

You have the funds to pay for a solar panel system with cash upfront.
You want to maximize the financial benefits of going solar. A cash purchase will net you the highest return on investment (ROI) for your solar system.
You want to take advantage of the ITC and other tax incentives and rebates.
You want to own your solar system outright.

A solar loan makes sense if:

You don't have enough funds to pay for your solar system with cash upfront.
You still want to maximize your savings as much as possible.
You want to take advantage of the ITC and other tax incentives and rebates.
You want to own your solar system outright.

A solar lease or PPA makes sense if:

You're not looking for the highest return on investment (ROI) from your solar system.
You aren't eligible for the ITC or other tax incentives.
You don't care about owning your solar system outright at the end of of your lease or PPA.