Zero-down solar: What financing options are best?

If you’ve decided to go solar but you can’t afford to spend thousands of dollars out-of-pocket to have solar panels installed, you can take out a zero-down solar loan or solar lease to pay for your system over time instead. Most solar loans and leases don’t require any down payment, which makes them a more affordable financing option than purchasing a system upfront in cash.

Although the idea of having no down payment is appealing – especially for big-ticket purchases like cars or solar panels – it’s important to understand the overall financial commitment you’re making before spending tens of thousands of dollars on a solar system that you’ll rely on for more than two decades. 

While solar loans are generally the most cost-effective choice for homeowners, we’ll walk you through the benefits and drawbacks of all of your zero-financing options, and which one is likely to make the most sense for your personal financial situation.

There are three main ways to go solar without any upfront costs – solar loans, and solar leases or power purchase agreements, also known as PPAs. Solar energy systems are an expensive investment, which is why about 85% of all solar system installations are financed.

Solar loans

The zero-down option with the most financial upside is a solar loan. When you take out a solar loan, you borrow money from a lender at a fixed-interest rate and pay it back in monthly installments. Your monthly payments will always be consistent and never increase. If you choose a solar loan to finance your solar panels, once you pay off your loan you own the system yourself (unlike with leases or PPAs), which allows you to capitalize on tax incentives like the federal solar investment tax credit, or ITC, which aren’t available to you if you lease your system instead.

Most solar loans come with a zero-down option. The amount you pay monthly depends on how much your system costs to install, your interest rate, your loan term, and the type of loan you choose, but your monthly loan payments will still cost less than your previous electricity bill, providing you with immediate savings.

Solar leases

Solar leases are another option for financing a solar energy system without spending any money upfront, but there are more financial downsides. You don’t own your solar panels at the end of the lease, which means you’ve been making years of payments on a system you can’t continue to gain savings from even after you’ve paid it off. If you take out a solar loan, on the other hand, you own your system once your loan term is complete and reap the benefits of going solar for years to come.

With a solar lease agreement, you pay the leasing company a fixed monthly price for the energy your solar panels generate, which is based on your system's estimated electrical production. Your monthly costs should be about 10% to 30% lower than your previous electric bill. 

A significant drawback to leases is that you can’t take advantage of the lucrative tax credits that are otherwise available to you as a solar system owner, because the leasing company itself is the owner. As a result, they are entitled to any rebates, tax breaks, or other incentives that come with installing solar panels, including the ITC. 

One of the biggest downsides of most solar lease agreements is that they have an annual rate increase of one to three percent built into your agreement based on the expected increase in your local electricity rates. The yearly rate increase, commonly referred to as an escalator clause, negates some of the savings you should gain from going solar. In comparison, solar loans don’t have escalator clauses, which means you’ll save more money with a loan versus a lease. Solar leases have waned in popularity as solar loans have become more widely available because they tend to offer greater savings. 

 Power purchase agreements (PPAs)

Zero-down power purchase agreements, or PPAs, work similarly to solar leases. You agree on a set price for your electricity with your provider and use the electricity generated by your solar energy system. As with a lease, a downside to PPAs is that your provider owns the system and therefore receives its financial benefits like the ITC and other tax incentives instead of you.

The main difference between PPAs and solar leases is how your payment is calculated. With a PPA, you agree to purchase the power generated by your system at a set per-kWh rate rather than the fixed monthly rate you pay for a solar lease, so you can expect your payments to fluctuate from month to month. That means you should be prepared to make higher payments during the summer months, for example, when you’re likely to be using more electricity than the spring or fall.

With a zero-down solar PPA, you owe nothing to your provider upfront. Like solar leases, your monthly bill will likely be between 10% and 30% lower than your previous electric bill, and you’ll likely have an annual rate increase of one to three percent per year (depending on your agreement), which also means you save less than with a solar loan. PPAs are also less popular these days because they generally don’t provide as much savings as solar loans do.

You can also check out our video below for an overview of the three main ways to finance a solar panel installation:

For most people, taking out a solar loan instead of a lease or PPA agreement will usually offer the most financial upside because you own your solar panels at the end of your loan term. Plus, you won’t experience annual electricity rate increases which can cancel out much of your solar savings. Regardless of which zero-down financing option you choose, you should always thoroughly research your options and understand how they compare to ensure you walk away with the highest quality solar system and most cost-efficient financing plan possible.

On the EnergySage Marketplace, you can solicit quotes from qualified, pre-vetted installers and compare them side-by-side to understand the financial benefits of each type of installation and determine which one makes the most sense for your particular needs.