Starting the trend as they usually do in the western world, the globe is now moving towards making clean and green energy a priority and this has seen solar panels become an important tool. Even if they are costing thousands of dollars most people are trying to do their bit by taking up solar leases or solar loans to get a solar panel to help out nature. However, it is important to compare solar lease vs solar loan to find out which of the two is the better option for you. For this, we will need to see what is the difference between solar lease and solar loans which is exactly what we will now be doing.
Solar Lease vs Solar Loan: What Should You Opt For?
Before we can look at the solar lease vs solar loan comparison it is important to understand what is meant by either. While they are not much different from a normal lease or loan the addition of the word solar limits their scope.
A solar lease is a lease taken for a solar panel. Instead of buying and becoming the owner of a solar panel, you take a monthly lease payment for the solar panel. Now you get the energy stored in the panels and this in turn brings your electricity bill down. The bill runs on for 20 to 25 years after which you can get the panels removed, or you can buy the panels for a discounted price or even extend the lease.
A solar loan is a loan taken especially to purchase and get a solar panel installed. Such a loan makes sure that usually there is zero down payment involved while the payment structure, rate, and term length may differ from a normal loan. With a solar loan, your monthly installment might be less than what your electricity bill totaled each month.
What is the Difference Between Solar Lease and Solar Loans?
Now that we understand what is the difference between a solar lease and a loan it is time for us to dive a bit deeper into the solar lease vs solar loan comparison to figure out how the two are further apart from each other.
1. Long-Term Savings
The first and foremost thing to consider is the money you save because the nature-friendly part is included in both. And rightly a solar loan will save you more money than a solar lease. A loan can be for anywhere between 5 to 25 years while a lease is for 20 to 25 years. So you can easily pay off the loans in the short term or earlier than due and own the panels and continue to save money on bills. Also, after the lease is over just your payments are over but the solar panel still doesn’t become your possession.
Also Read: What is Meant by Solar Loan Calculator?
2. Monthly Payments
In both cases, your electricity bill goes down or gets negated which is a good thing. However, with solar loans and solar leases, you still have monthly payments to take care of, and for loans, this amount will be more or less fixed until you decide to pay off quickly or make a change but in the case of a lease, the amount payable monthly goes up each year. To add to it if the electricity cost doesn’t go up a certain year then you end up paying more than you would otherwise.
3. Incentives and Tax Credits
Net metering steps up in case of both a lease and a loan and which reflects in your utility bill. However, if you sign up for a solar lease then solar renewable energy credits, federal investment tax credits, or various other utility incentives end up going to the leasing company and not you because they are the owners of the system. However, with a loan, you become the owner of a solar system and so all of these benefits and incentives are rightfully offered to you.
The next factor in the solar lease vs solar loan comparison is maintenance and it is a significant factor to consider when choosing to opt for either. Here again, the ownership comes into the limelight as it is the owner’s responsibility to cover every cost that may be borne. So if you take a solar loan then you need to take care of the system and pay any expenses that may be incurred by the system, however, if you go for a lease then the company that owns the system is liable to pay up such costs.
It is important to note that very rarely does a solar panel require maintenance, yet it is important to keep this factor in mind when making a decision.
5. Sale of Home
Taking up a solar loan or a solar lease can have contrasting effects on the sale of your home. It is difficult to sell a house that has a solar lease since the owner either needs to pay out the least or transfer it which is not something that everyone is willing to do. While houses that get a solar panel funded via solar loan are easier to sell and add significant value to the property. The only thing to keep in mind is that a secured loan needs to be said before the house can be sold because the house is the collateral in this deal but an unsecured loan can be paid by the old owner even after the house has been sold to the new owner.
|Yes, needs to be paid
|Lesser savings than solar loan
|More savings than a solar lease
|You don’t own the system
|You own the system
|Federal Tax Credit
|Doesn’t qualify for tax credits
|Does qualify for tax credits
|Doesn’t qualify for SRECs
|Does qualify for SRECs
|Makes difficult to sell a home
|Adds value to the property
|Monthly payments increase year after year
|Mostly fixed payments unless you decide to intervene
|You don’t pay for maintenance
|You need to pay for maintenance
Solar Lease Vs PPA: Which is Better?
So now that we have seen the solar lease vs solar loan comparison it is time to bring a new player to the party. We are talking about PPA, a power purchase agreement. Just like a solar lease, PPA also is a solar financing option and doesn’t make you the owner of the solar panel. Under PPA you pay money as per the kWh charge set by the solar company. Depending on where you live, the price of electricity, and various other factors you will be charged for the energy you use.
Now let’s look at the similarities and differences between the two.
1. No Upfront Costs
For solar lease as well as PPA no kind of upfront costs needs to be paid. However, you also not don’t end up becoming the owner of the system in either case.
2. Monthly Payments
While you may not own the system the energy produced by the system is for you to use. This also helps you go off the grid and save money on utility bills. Both these arrangements make sure that your monthly payments are lesser than what you would pay for electricity otherwise.
3. Price Escalators
Both solar leases and PPAs come with price escalators which means that your monthly payment may go up each year by 3 to 5%. It is mentioned in your contract beforehand.
4. Long-Term Contract
PPAs and solar leases are both long-term commitments and may range from 10 to 25 years. At the end of either contract, you have the option to buy the solar panel or to get it removed.
5. No Maintenance
Different from the case in solar lease vs solar loan, a PPA is similar to a solar lease in the sense that the brunt of maintenance cost does not rest with you. The solar company that owns the system will take care of the repair and other such costs which may anyways not be incurred.
Also Read: What is EPC in Solar?
6. Problems with Selling Home
While a PPA or solar lease can be transferred, not many people are willing to do so and this makes a home with such a system difficult to sell. You either find a buyer willing to transfer the contract or you need to pay a break fee to end the contract.
7. Utility Bill
While a solar lease and PPA are almost the same, a PPA works more like a utility bill, unlike a solar lease. Solar leases aren’t concerned with the kWh of energy you use and you are just making monthly payments less than your utility bill. On the other hand, in PPA you are paying per kWh of energy used and the charge is less than what you would pay for an electricity bill.
So if we compared solar loans, leases, and PPAs then it would be safe to say that the latter two are similar to or almost interchangeable terms while solar loans are completely different from either of the two. After this, let’s see between solar lease vs solar loan which is better.
Also Read: Can You Go Solar with Low Credit?
Solar Lease vs Solar Loan Which is Better?
So having looked at solar loans and solar lease/PPA it is now the time to give a verdict as to which of the three or two is better. So solar lease vs solar loan which is better?
As seen above, in the solar lease vs solar loan section there are quite a few differences between the two.
- A solar loan does not come with upfront costs to be paid whereas a solar lease requires upfront payment.
- Next up the savings factor which is also another important factor to consider also indicates that a solar loan is better than a lease since it offers better long-term savings.
- Also, you end up owning the system when you sign up for a solar loan but the same can’t be said for a solar lease where you just pay the lease month after month just as you would pay a bill.
- A solar loan qualifies for a tax credit as well as SRECs while a solar lease doesn’t qualify for either.
- The monthly payment for a solar loan is more or less fixed whereas monthly payments for a solar lease increase every year.
- A home with a solar lease is difficult to sell whereas a home with a solar loan sees its value getting appreciated.
- Lastly, you don’t pay maintenance or repair charges when you sign up for a solar lease but the same can’t be said for solar loans.
So all said and done our money is on the solar loan being better and ideal as compared to a solar lease.
In this article, we didn’t just compare solar lease vs solar loan but also compared solar lease vs PPA, and what we have established is that solar loan is better than solar lease and PPA which are more or less the same thing at least on paper. However, not everyone might want to own a solar system and so getting a solar loan for such people doesn’t make any sense, which is where a solar lease or PPA can be the better option. So in the end it comes down to your requirement as to what option you prefer over the other.
Recommended: Should I Buy A House With Leased Solar Panels?