Purchasing solar panels: Tips for buying or leasing

Installing a home solar system is a smart long-term investment, and it’s usually best to purchase your solar panel system rather than lease it. There are very few situations in which it will make more financial sense to lease solar panels than buy them outright or take out a solar loan.

Whether you take out a loan or sign a lease, going solar is a smart move because it saves you tens of thousands of dollars on your electric bill no matter how you choose to pay for your system. If you take out a solar loan there are more benefits than a lease because you own the system. Owning the system can increase the value of your home, attract more buyers and help you sell your home at a higher price point.

Purchasing a new solar system outright is by far the best way to reap the most financial rewards from your investment. However, the average homeowner may pause at the upfront cost – which is typically as much as $20,000 or $30,000 before tax incentives and rebates. If you have to decide whether to lease your system or purchase it with a solar loan, the majority of time it makes the most sense to pay off your system with a solar loan because you own it outright at the end of your loan term. That’s not the case with a lease.

No down payments or upfront cash required

Down payments usually aren’t required for either solar loans or solar leases, so you’ll see immediate savings from both without having to make a significant cash expenditure.

Monthly payments 

Solar lease: After the first year of a solar lease, you’ll experience annual rate increases known as an escalator, which means that each year your monthly payments will be higher. That’s because your leasing company will typically raise your per kWh cost around 2-3% each year, which means you lose out on stable electricity costs, one of the benefits that makes solar panels so financially appealing.

Solar loan: Annual rate increases aren’t written into solar loans. If you take out a solar loan, your monthly payments are fixed for the entirety of your loan term and remain consistent. There are two types of solar loans - secured and unsecured - which we’ll explain in more detail below. 

Another less common option is a prepaid or custom down payment lease or PPA  – but it requires spending money out-of-pocket. We don’t generally recommend this option, even though it can result in lower monthly costs. 

Tax credits and other financial incentives

Solar loan: When you buy or take out a loan for a solar panel system, you're eligible for the federal solar investment tax credit (ITC), which allows you to receive a tax credit equal to 30% of the total cost of your system, reducing the expense of going solar by thousands of dollars. Plus, many states have local rebates and incentives that provide additional savings. 

Solar lease: One of the major downsides to a solar lease is that the valuable federal solar tax credit and other state incentives typically go to the system's owner – which is the leasing company, not you – so you’ll never see those thousands of dollars. In contrast, if you finance with a solar loan, you directly benefit from the financial incentives, which means saving yourself the thousands of dollars you lose out on with a lease.

System operations and maintenance

Solar energy systems generally require little maintenance over their lifetimes. However, in the rare cases that they do, the responsibility typically falls on the system owner if your solar panels need care.

Solar lease: If you choose a solar lease or PPA, the leasing company that owns the solar system typically will offer a service program to cover any maintenance issues that arise during the lease term. Although this sounds good on paper, some customers report difficulties trying to get their leasing companies to come check on their systems. Unfortunately, since you’re on the hook for your monthly payments no matter what, they have little incentive to prioritize customer maintenance requests. This isn’t necessarily a huge benefit either, since solar panels come with warranties that cover equipment malfunctions anyway.

Solar loan: If you take out a solar loan to purchase your system, you’re responsible for its maintenance, but you should be covered by your equipment manufacturer’s warranty, which typically lasts anywhere from 10-30 years. Plus, your solar installers should also provide a workmanship warranty.

Application processing time

Solar lease: Solar lease and PPA applications can often be approved and signed in a single meeting, but as with any major financial commitment, it’s wise to do additional research and think through the decision before committing on the same day.

Solar loan: In comparison, solar loans can take longer to approve because they require additional administrative steps like home appraisals that may take a few weeks.

Availability of solar loans vs. leases and PPAs where you live 

While lenders offer solar loans in all 50 states, some states don't permit solar leases and PPAs for residential solar panel systems. As of now, at least 28 states and Washington, D.C. authorize or allow solar PPAs.

Studies show that homes with solar panel systems sell at prices more than 4% higher on average than homes without solar, as well as selling faster. However, that price bump only applies when you’ve purchased the system rather than leased it. Trying to sell a home with a leased solar system attached can cause headaches and even turn buyers off in some cases. Many prospective buyers don’t want to take on a lease because it requires making payments on a system they won’t own at the end of the agreement, and the panels are removed from the house once the contract ends. 

Researchers have found that potential homebuyers are willing to pay more for homes with customer-owned solar. Homes with an average size solar system sold for a premium of $15,000 across different states, according to a Lawrence Berkeley National Laboratory study. Even if you still have to pay off the rest of your solar loan, the increase in the sale value of your home can help offset or cover your loan amount. 

Solar loan: If you finance your solar system with a secured loan (like a home equity loan or home equity line of credit), your home serves as collateral for the loan, which means if you can't make your monthly payments for any reason, your lender can repossess your home. Additionally, taking out a secured loan usually means you must pay off your mortgage in full before selling your house. For many people, those are big downsides to secured solar loans, and it’s also why we typically recommend unsecured loans instead. However, in most cases, secured loans don't have prepayment penalties, so there's no disadvantage to paying the system off early.

If you finance your solar panel system with an unsecured loan, the loan is not tied to your property, so you can sell your house before you’ve paid off the loan in full. Keep in mind, that means you’ll still be making payments for a solar system attached to a house you no longer live in. However, you can avoid that scenario by using some of the proceeds from the sale of your house to pay off the remainder of your solar loan. 

Solar lease: If you leased your solar system, there are two main ways you can handle the lease when selling your house. 

1. Buy out the remainder of the lease: When buying out your lease, you can either have the panels removed from your roof or keep them there and sell the system as part of the property. Many leaseholders find that they owe additional fees or penalties when buying out their solar leases, which is why it’s crucial to read the fine print carefully when you sign your original contract. 

2. Transfer the lease to the new property owner: If the new owner is willing to take over the lease and meets the third-party owner's criteria, you can transfer the agreement into their name.

If you're considering transferring the lease to a new property owner, they will need to meet the credit requirements of the third-party owner of the system. However, that’s usually not an issue because if a potential buyer receives approval for a mortgage, their credit score is likely high enough for a solar lease or PPA.

If you're selling a solar home with a leased system, keep in mind that the terms of your lease agreement will vary depending on the leasing company. Some leases may have a penalty for paying the lease out prematurely or a higher buyout price than your remaining lease payments. For example, if you have $15,000 of payments remaining, you may have a clause in your lease that says if you want to end the agreement early it’s a $20,00 buyout, which means you’re on the hook for an additional $5,000 you hadn’t planned for. We recommend reading your lease agreement thoroughly before signing so you fully understand the terms. 

Although a leased solar system can deter potential homebuyers due to the complexities of transferring the lease, a study showed that only 20% of homeowners have had potential buyers back away because of a lease agreement, and 77% homeowners in the same study successfully transferred their leases to the new property owner.

The bottom line is that financing your solar system with a solar loan is usually a better financial decision than leasing one. Either way, even if you end up moving before your solar panel system loan or lease expires, going solar is still a smart investment because you'll save thousands of dollars on your electricity bills over time. As with any contract, carefully review your financing agreement to make sure you clearly understand all of the terms and conditions you’re agreeing to. Walk through all of the potential scenarios with your solar installer before signing on the dotted line.

To compare the cost of owning versus leasing your solar panel system, use EnergySage's solar calculator to find out how much solar can save you, or register your property on the EnergySage Marketplace and receive multiple quotes from pre-screened solar installers.