As solar energy is becoming more popular, we should be looking at the fiancing options for solar panel installations. Many homeowners want to purchase the PV systems but are worried about their credit scores. So, today, in this blog, we will discuss if you can go solar with low credit and consider solar loan a worthwhile option as well.
Can You Go Solar with Low Credit?
Yes, you can, but it might comes with higher interest rates. However, 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. In most cases, to get a loan, you have to have at least a credit score of 650. However, the better your score is the more favorable the terms of the loan become.
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.
Is a Solar Loan a Personal Loan?
A solar loan doesn’t have to be a personal loan. It could be personal or business loan and 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.
Other Financing Options to Get Solar Loan
Apart from taking a secured or unsecured loan, you have the option of,
1. Financing from solar companies via third-party lenders. 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 where your home becomes collateral against the loan. It is 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.
3. Another financing option available to you is to get a home equity line of credit option. It allows you to pay only interest on the loan in the initial stages. However, the interest rate here is variable.
4. 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. 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.
For more details, check out What is PPA Solar: Pros, Cons and Working
Can You Finance Solar Panels?
Yes, you can. Apart from getting a personal, business, secured, or unsecured loan, you can also consider leasing, PPA, and home equity loan to accommodate your average credit score.
You can get a loan that offers you a longer payback time or get a loan with a shorter payback duration which will increase the amount payable monthly in installments.
What is the Interest on Solar Loan?
The rate usually varies between 4-20%. It depends on the credit score, (whether it is low or moderate) and the length of loan (it ranges from 2-25 years).
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.
Cross-reference: Solar PV System Loans
Can you Pay Off Solar Loan Early?
Yes, you can but some banks or financers may charge you a penalty fee for paying off solar loan early while most don’t. It is better to check their policy regarding early payoff. Depending on whom you take a loan from and its type, the terms and conditions may differ. However, with a lot of financers, certain stipulations remain the same for similar things like repaying a loan.
Also See: Is Selling a House with Financed Solar Panels Possible?
Does a Solar Loan Have an Impact on My Credit Score?
Yes, it does. And not just in one way or two but in multiple ways which are mentioned below,
1. During the Application: When you apply for this PV 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; 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 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 any loans in general on time can be good for your credit score ratings.
Also See: Do You Still Have an Electric Bill With Solar Panels?
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.
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?
Yes, it is worth it and depends on the cost of your solar panel system and the kind of interest rate you end up getting. 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.
With that, we have covered different aspects of the credit score required for installing PV panels and the significance of solar loan. We are aware that a good credit score plays a important part in it but there are other options as well. So, as we move toward a clean and green future, we can opt for different financing methods that makes it easier to get PV systems.
Recommended: Solar Lease Vs Solar Loan: What Should You Opt For?
