I have had a lot of conversations about how solar financing works and how it varies from traditional financing. Solar financing can seem a bit strange and unfamiliar so I decided to jot down some facts and hopefully explain some of the basics.
No money out of pocket
Every single loan product we offer for solar system is NO MONEY DOWN. This means no upfront costs or fees. Essentially you can transition from paying the utility to rent your energy to owning your energy without spending a penny!
Flexible to Meet your Needs
Solar financing is available in many terms making it easy to tailor the loan to the project and/ or the clients particular budget goal. Our lenders offer 10, 12, 15, and 20 year terms. All solar loans are simple interest and have no pre-payment penalties.
Caters to Federal Solar Tax Credit
This is the meat and potatoes of solar financing and what makes it different from traditional loans. When you purchase a solar system, you can receive a 30% refund of the system’s cost on your next federal income tax return. Solar financing takes this incentive into consideration in the payment schedule.
When you finance your system the loan is set up to give you up to 18 months to file your taxes and apply the 30% Solar Tax Incentive to the loan. The finance contract will include 3 different payment amounts. The first payment is an interest-only payment for the period of time (up to 18 months) in between installation completion and when you file your taxes for that year. The second is the payment amount before the incentive is paid to the lender and the third reflects what the payment will be after the 30% has been paid. This allows you to have enough time to file your taxes and forward the payment to the lender.
Payment of the 30% federal tax incentive is not required by the lender, nor is there any penalty if it is never paid. You simply would have a higher payment based on the principal loan amount being 30% higher. It is worth mentioning that close to half of people who finance their solar systems never pay in the incentive. Some use the 30% tax incentive to pay down other higher interest loans or credit cards. Others might take a well-earned vacation or make a larger purchase that may have otherwise been impossible. It is a good example of how solar has hidden benefits beyond the obvious energy cost savings.
To sum it up, there is a financing option for everyone and we cater to each client individually and offer options in a consultative manner.
-Erik Smith
Technical Sales
LighthouseSolar