Solar Loans in Virginia
Here’s everything you need to know about financing your home solar system in Virginia.
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.
What are the Key Variables of a Solar Loan?
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?
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.
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 state tax incentives (where applicable). | 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?
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.
Dominion Energy Solutions Does Solar Right
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