We have expressed skepticism over the value of solar leases for residential clients in the past and, as a result, we have refused to offer them. Unfortunately, for some perspective clients, something was needed between a straight-up cash purchase and the siren song of the solar lease. Now we have an answer - the solar loan.*
Run on Sun is now able to offer qualified residential clients a $25,000 secured loan with the option to also include up to $15,000 more in an unsecured, 18-months same-as-cash plus loan. Together, these two loan options provide for as much as $40,000 for solar power systems - enough for 95% of all residential solar projects.
The first piece of the financing mechanism is the $25,000 step-down loan. Under this program, which is open to residential clients with FICO scores of 650 or more, the client has the option of re-amortizing the loan once within the first 24 months - after the rebate and tax credit payments have been received. This allows the client to take advantage of those incentives - as opposed to surrendering them to the leasing company - and use some or all of those proceeds to lower your monthly payments. In addition, there are no pre-payment penalties and the interest is most likely tax deductible - unlike lease payments (but please, check with your tax advisor).
The second piece is the $15,000 plus loan for systems larger than 5-6 kW. This loan requires a FICO score of 700 or more, and no payments are required until 18 months from the date of funding. The intent here is that for larger systems, no payment is made on this second loan piece until the rebate and tax incentive have been received, at which time they can be used to pay off this part of the loan. In this way, qualified homeowners can purchase larger systems without increasing their monthly payments.
So why is this better than a lease? For one thing, the loan terms are more flexible than many leases, allowing the homeowner to choose repayment periods from five to twenty years. (Of course, the shorter the term and the better your individual credit, the better the interest rate will be.) Another benefit is that your payments are fixed; there are no escalator clauses in this loan, thereby eliminating the fear that your payment could increase faster than utility rates, possibly destroying the value of your system - no such assurances with leased systems. And because you own the system, if you decide to sell your home there is no qualification issue to worry about with potential buyers.
But here's the best part - you will save more money with a loan than you will with a lease! Don't believe me? Take a look - let's suppose you need a 5 kW system and you want to pay for it over twenty years (the same terms as most leases). Your credit is very good, but not outrageously good (say, somewhere between 725 and 759), and you are presently averaging $0.22/kWh to SCE. We will assume you are in a 30% tax bracket and we will estimate SCE's rate increases, conservatively, at 4.5%/year. (Note that some leasing companies use 6% or higher - making their numbers look better than they might really be.) That works out to a loan amount of $22,500, give or take.
How do your savings compare over 20 years? Take a look:
Because you are able to apply your rebate and tax credit to the loan - as opposed to simply handing those over to the leasing company, your loan payment steps down in Year 2. By Year 6 the loan has saved you more money than the lease, and that differential continues to grow year after year. By the time the loan is paid off and the lease term ends, you will be $5,600 ahead having chosen a loan over a lease! (Of course, these are estimates only, your mileage may vary!)
If you are looking to go solar but need a financing vehicle, we strongly encourage you to consider the loan option. Give us a call today and let's help you run some number and get you started on a solar project that will maximize your benefits!
*Solar loan financing provided through Admirals Bank, Equal Housing Lender, Member FDIC.