Solar Loans in Virginia: A Solar Financing Guide
You can purchase your home solar system outright, but financing has become the top way Virginians are reaping the benefits of the sun’s energy. It allows homeowners to spread out the costs over time while, in most cases, equals or is even cheaper than the monthly power bills customers pay their utilities.
How does financing work? How can it work for you? And are the savings even real?
In this guide, we’ll help you navigate the solar financing landscape in Virginia so that you can make informed decisions for your home solar project.
What is a Solar Loan?
A solar loan is one of several financing options that allows homeowners to borrow money to purchase and install solar panels on their property. The loan is typically repaid in monthly installments over a fixed period, similar to a home mortgage or car loan.
For example, suppose a homeowner is interested in installing a solar system that costs $20,000. Instead of paying the entire amount upfront, they opt for a solar loan with a 5% interest rate over 10 years. Their monthly payment would be around $212. Over time, the energy savings from reduced utility bills can help offset the loan payments, often making the overall cost of going solar lower than sticking with traditional energy sources.
The advantage of a solar loan is that it enables homeowners to go solar without worrying about the full upfront cost, making solar energy more accessible. But it’s important to read the fine print on any financing option you get from an installer. Features you need to pay attention to include the interest rate, loan duration, and any applicable fees for setting up the loan and/or paying it off early.
What are the Key Variables of a Solar Loan?
Solar loans work similarly to other loans. A lender provides the necessary funds upfront, and the borrower repays the loan over a fixed period, usually with interest.
The key advantage is that the loan allows you to install a solar energy system without the burden of shouldering the cost upfront. The savings on your energy bills typically offset the loan payments, making it an attractive option for many homeowners.
To fully understand how a solar loan works, it is helpful to be familiar with a few key terms:
- Principal: The initial amount of money borrowed to finance the solar system.
- Financing Term: The length of time over which the loan will be repaid, usually ranging from 5 to 20 years. As a reminder, your solar panels will often be warrantied for 20+ years.
- Fees: Additional costs associated with the loan, such as origination fees or past due payment penalties.
How Do I Get a Solar Loan?
You can certainly shop the open market, but most solar installers offer solar loans through agreements they have with reputable financial institutions. The process of acquiring a loan typically includes the following steps:
- Application: You apply for a solar loan through a bank, credit union, or solar lender.
- Approval: The lender reviews your creditworthiness and approves the loan amount based on your financial situation.
- Disbursement: Once approved, the funds are disbursed to the solar installation company, which then installs your solar system.
- Repayment: You begin repaying the loan in monthly installments over the agreed-upon term, typically between 5 and 20 years.
This structured process allows homeowners to benefit from solar energy while managing the costs over time, making solar loans an accessible financing option for many.
How Does the Federal Residential Solar Tax Credit Factor Into Loans?
The federal residential solar energy credit is a tax credit that can be claimed on federal income taxes for a percentage of the cost of a solar PV system paid for by the taxpayer. Homeowners are able to take this credit during the tax year the system is completed.
It is important that you work with your loan provider to determine who receives this tax credit. Dominion Energy Solutions only offers loans where the homeowner is the recipient of the full tax credit (meaning this tax credit does not go to the loan originator or the contractor who built your system). The loan structures we provide have deferred down payments of 30% at 18 months, meaning you have a choice to use your tax credits towards the down payment within that timeframe or pay the down payment through other means.
What are the Types of Solar Loans?
There are typically two types of solar loans: secure and unsecured loans. However, it is important to note that most solar-specific loans are considered unsecured, and here is what we mean. Below are the four types of loans out there and what they mean.
- Secured Loans: These loans are backed by collateral, usually your home, which may result in lower interest rates. However, failure to repay the loan may result in foreclosure.
- Unsecured Loans: Typically used for solar projects. This requires no collateral, but interest rates may be higher.
- Home Equity Loans: A type of secured loan where you borrow against the equity in your home typically offered by banks.
- Personal Loans: Unsecured loans that can be used for solar installations but may have higher interest rates than solar-specific loans.
Here is how these solar loans compare to one another:
| Loan Type | Interest Type | Collateral Required | Typical Loan Term |
| Secured Loan | Lower | Yes | 10-20 Years |
| Unsecured Loan | Higher | No | 5-15 Years |
| Home Equity Loan | Lower | Yes | 10-30 Years |
| Personal Loan | Higher | No | 3-7 Years |
What are the Pros and Cons of Solar Loans?
While a solar loan can be great, taking out a loan also offers some disadvantages you need to consider before making the decision. We have compiled the pros and cons you need to know before considering a solar loan.
| Pros of Solar Loans | Cons of Solar Loans |
| You own the solar system, which can increase your property value. | It takes longer to break even in comparison to cash payment. ROI is also significantly lower. |
| Eligibility for federal tax credits and state incentives. | Potential fees like dealer fees and closing costs may be as high as 30%. |
| Long-term savings on electricity bill | Taking on additional debt that must be repaid. |
| Predictable monthly payments over the loan term. | Considering the lifespan of a solar panel is 25-30 years, long-term loans may negate the benefit of owning the system. |
| Low or no down payment is required, depending on the lender. | Loan may not cover batteries and EV chargers depending on the lender |
How do You Choose a Solar Loan?
If we were to boil down the decision-making process to one word it would be this: fees. The fees associated with your loan can significantly impact your overall savings that comes with installing solar on your home.
Sometimes, low-interest loans are accompanied by fees like the dealers’ fee and other hidden fees that will eventually ensure you are paying more for less. For instance, some loans include prepayment fees, which charge you for paying off your loan early – a detail that often catches borrowers by surprise. Understanding these potential fees, asking the right questions, and knowing your financial obligations are essential steps in selecting the most cost-effective solar loan.
Here are a few things to consider:
Fees
When evaluating solar loans, fees can be a hidden trap. Dealer fees, which can be as high as 30% of the loan amount, are particularly important to watch out for. These fees are sometimes bundled into the loan and can offset the benefits of a lower interest rate.
For example, a loan might advertise a low interest rate, but if it comes with a high dealer fee, the overall cost could be much higher than you initially anticipated. Additionally, prepayment penalties, which charge you for paying off your loan early, can also inflate costs if you’re planning to pay down your loan faster than the term allows.
To avoid surprises, always ask about these fees upfront and compare the total cost of financing rather than just focusing on the interest rate.
Interest Rate
The interest rate on your solar loan is a crucial factor, but it’s important to look beyond just the number. Solar loans often come with either fixed or variable interest rates. A fixed-rate provides stability, ensuring that your monthly payments remain the same throughout the loan term.
However, a variable rate could mean lower payments initially, but the risk of higher payments if interest rates increase. Additionally, some solar loans offer a re-amortizing feature that adjusts your payments after you receive federal solar tax credits, potentially lowering your overall cost.
When considering interest rates, think about your financial goals and whether you plan to pay off the loan early. If so, check for prepayment penalties, as they could negate any savings from an early payoff.
Loan Terms
The length of the loan and the structure of your payments are other key considerations. Solar loans typically range from 5 to 20 years, and while longer terms can mean lower monthly payments over time, they also result in more interest paid.
It is also essential to confirm whether your loan has fixed or variable payments. Fixed payments provide predictability, but some loans, known as re-amortizing loans, may have higher payments in the first year to account for the tax benefits from the federal solar investment tax credit.
This structure can be beneficial if you plan to use the tax credit to pay down your loan. Always review your loan documents carefully to ensure you understand any potential changes to your payments throughout the loan term, and choose a loan that aligns with your long-term financial strategy.
Who is the Top Solar Loan Provider in Virginia?
As one of the leading solar installers on the East Coast, Dominion Energy Solutions offers competitive solar financing in Virginia. Our loans are tax deductible, and we offer no prepayment penalties if you pay off your loan early. We also offer the ability for you to add batteries and EV chargers with all loans. Importantly, we pride ourselves on our transparency and will clarify all the fine print and even do side-by-side comparisons showing how our loans stack up to any other offers you may have received in the market.
Ready to begin your solar energy journey? Call us or click here for a free quote.
