If recent reports are to be believed then we won’t be seeing ourselves meet a lot of positive goals set for the year 2050. Drinking water, crops, resources, and pollution will all take a turn for the worse and to add to the woes we also will be seeing the population grow exponentially. But again this doesn’t mean we can stop making an effort and so trying to shift to clean and green energy is pretty much still going on around the world. And so sooner or later we all might be forced to get solar panels or wind turbines. Now not everyone may have that kind of money and so today we will be looking at the possibility of can you go solar with low credit while also understanding is a solar loan worth it or not.
Can You Go Solar with Low Credit?
Hopefully, people out there know what a solar loan is. Just like a car loan, house loan, or any other loan, you have a solar loan. Such a loan is taken when you want to get a solar panel for your home, workplace, business, etc. A solar loan could be a personal or business loan and it can also be a secured or an unsecured loan. Be it a loan from either category there will always be certain eligibility requirements that you would need to meet to get a loan.
So can you go solar with low credit? No. Having a good credit score or credit history is key to getting a solar loan especially if you are opting to get an unsecured loan. On the other hand, a secured loan can be obtained without having a good credit score, however, you would have to place collateral against the loan. And while the credit score might not be checked it still needs to be above average. The interest rate is low and lending terms are more favorable with a secured loan as compared to an unsecured loan.
In most cases, the solar loan is for personal use and so you need to take a personal loan. For a personal loan, you need to have at least a credit score of 580 to get approved so while it might not be that high it also isn’t exactly very low. However, the better your score is the more favorable the terms of the loan become.
There are also a few other options to final a solar panel and they are,
- Getting a government loan under the Federal Housing Administration under which you can sign up for the PowerSaver Energy Rehab or the PowerSaver Second Mortgage loan.
- Another option is to get a home equity loan.
- Lastly, you could also opt for solar leasing instead of getting a solar loan.
Is a Solar Loan a Personal Loan?
A solar loan doesn’t have to be a personal loan. The upfront investment cost in a solar panel can be high which might force you to borrow money. Now this money that you borrow for a solar panel becomes a solar loan but is a solar loan a personal loan? Not exactly. If taken for personal use such as installation at home, office, etc. then yes it fits under a personal loan. However, you have more options.
Apart from taking a secured or unsecured loan, you have the option of,
1. Financing from Solar Companies
Quite a few solar companies get you loans via third-party lenders and these are similar to a home improvement loan. These loans are not only unsecured but also don’t require any own payments. The duration of repayments for such loans might be longer than a personal loan or they might have lower interest rates.
2. Home Equity Loan
If you have used a solar loan calculator and figured out the final payment amount then you can opt to get a home equity loan where your home becomes collateral against the loan. This makes it a secure loan with a fixed rate which is not only lower than that of an unsecured loan but also the repayment duration is longer.
Another financing option available to you is to get a home equity line of credit option. Can you go solar with low credit? In a way yes when you use this option since your home again becomes collateral. It is more flexible than a home equity loan because you can draw funds when you want to. Also, this option allows you to pay only interest on the loan in the initial stages. However, the interest rate here is variable.
4. Cash-Out Refinance
You can always take a loan to pay a loan and similarly here you take a second mortgage to pay the first mortgage but the former has to be larger than the latter. Pay the first mortgage and use the difference to get a solar panel. However, the current mortgage rate should be low to make it a favorable option.
5. Leasing or PPA
If the large upfront cost is too much for you to pay or if you aren’t eligible for federal and state tax credits then you can consider getting a power purchase agreement or leasing solar panels. There are little to no upfront costs involved in either case. The panel owner will take rent from you and will also receive any available tax incentive from the government.
Also See: How Does a Solar PPA Work?
Can You Finance Solar Panels? What is the Interest on Solar Loan?
Can you finance solar panels? Yes. We have already seen above the number of options open to you when you wish to get funds to finance a solar panel. Apart from getting a personal, business, secured, or unsecured loan, you can also consider leasing, PPA, home equity loan, and a few other options which might even accommodate your average credit score.
However, what is the interest on solar loan? This is the most important question to answer when considering your options as certain methods might be better than others. You can get a loan that offers you a longer payback time which means you will be paying more money in interest or you can get a loan with a shorter payback duration which will increase the amount payable monthly in installments.
You can check the rate of interest on various types of finance options below,
- Getting a secured loan such as a home equity loan or HELOC can invite an APR between 3 to 8.5%. The final percentage depends on your credit score.
- Getting a PACE loan could be costlier considering its higher APR range of 6.5 to 8.5%.
- Getting an unsecured loan sees the APR range extend from 6 to 30% or even more. The better your credit score the better your chances of getting a lower rate of interest.
How Long Does a Solar Loan Take?
In the chain of questions, the next obvious question would be how long does a solar loan take? Obtaining a loan might take not more than a week or so if you meet all the eligibility requirements asked of you be it a secured loan or an unsecured loan that you want. However, the payment duration can vary depending on the kind of loan or financing option you opt for.
In the can you go solar with low credit section you saw that an average credit score might be able to get you a loan but as a repercussion, you might be asked to present collateral against the loan and if it is an unsecured loan then credit score becomes even more important at it not only decides your loan percent but also becomes one of the main criteria to get a loan.
A solar loan usually has a lifetime of anywhere between 5 to 25 years which means that it can outlast the solar panel itself. A more typical repayment period might be anywhere between 8 to 20 years. However, among the borrowers, 12 years and 20 years seem to be the most preferred options of which the former is slightly more preferred of two.
Can you Pay Off Solar Loan Early?
Depending on whom you take a loan from and what kind of loan you take, the terms and conditions may differ. However, with a lot of financers, certain stipulations remain the same for similar things like repaying a loan. So the question is if you have the money then can the solar loan be paid off earlier than due?
Well, most banks and financers don’t see early repayment as a problem and willingly accept the payment. You can be making monthly payments higher than what you owe and it can help bring down the original sum and therefore interest or you can pay off the whole loan before the duration. Some banks or financers may charge you a penalty fee for paying off early while most don’t. It is better to check with your finances beforehand to find out what their policy regarding early payoff is.
Does a Solar Loan Have an Impact on My Credit Score?
After going through can you go solar with low credit, you have learned that you might be able to get financing for solar panels with a low credit score. However, you should be mindful of the fact that the solar loan will impact your credit score. You will have the chance of improving your credit score but on the other hand, defaulting on payments will also mean that your credit score goes down.
So does a solar loan have an impact on my credit score you ask, it does we answer. And not just in one way or two but in multiple ways which are mentioned below,
1. During the Application
When you apply for a solar loan the lender may perform a hard or soft credit inquiry before accepting your application. A hard credit inquiry temporarily affects your credit score while a soft inquiry does not affect it whatsoever. You can’t avoid a hard inquiry so be ready for your credit score to take a hit; however, you can make sure to keep such inquiries to a minimum.
2. Credit Mix
Loans you have taken in the past and your performance when repaying them will matter when being considered for a new loan and so a bad history with items such as a car or home in the past can make it difficult to obtain a solar loan. Similarly, if you perform badly with the solar loan then you may not be able to get a car or home loan in the future.
3. Pay Bills On Time
If you are a good borrower and return the borrowed sum in time then the same will positively affect your credit score. Make sure to have the necessary funds in advance to make the payments in due time and that way you can see your credit score improve. Paying solar loans or any loans in general on time can be good for your credit score ratings.
4. Low Usage
You may have a great credit allowance because of good credit history but that doesn’t mean you go about using the total limit. Make sure to take only as much credit as required and try to keep the borrowing to a minimum. This shall have a positive effect on your credit score. So if you can pay off some amount in cash or otherwise then do so instead of taking the whole amount in a solar loan.
5. Apply Only when Necessary
Don’t go about applying for credit if you don’t need it now. If you have made up your mind to get a solar panel and are willing to go ahead with it only then take the loan. Applying for no reason frequently can result in bringing a negative effect on your credit score.
Is a Solar Loan Worth It?
So now that we have comprehensively seen what a solar loan is and how it works the real and final question boils down to whether a solar loan is worth it or not.
A solar panel may cost upward of 10,000 dollars and the savings you make on these bills in a year can be upward of 1,000 dollars. So if we assume that a solar panel will function for 25 years and will help you save at least 1,000 dollars a year then your total savings come to 25,000 dollars over the life of your solar panel.
So again depending on the cost of your solar panel system and the kind of interest rate you end up getting, this is a decision for you to make. A solar panel may or may not benefit you monetarily but it will surely help nature and for that reason alone it might be worth it.
So with that, we have not only answered the question can you go solar with low credit but also saw if can you pay off solar loan early, and these two things together can be used to your advantage. So whether it is worth or not to get a solar loan is a different question but be assured that you will have to get one sooner or later as we move toward a clean and green future.
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