Solar financing: How do you pay for solar panels?

Nearly five million U.S. homeowners have made the switch to solar, and for good reason: It's one of the smartest investments you can make for your home. Solar panels increase your property value while slashing your electricity costs for decades to come.

If you're paying $205 per month today, that's about $87,000 you'll spend on electricity in the next 25 years, accounting for inflation. Solar panel systems typically last for 25 years or more and offset most or all of your monthly electric bill, which means you can avoid the vast majority of that future spending.

By investing in solar, you can avoid most or all of that future spending on electricity. As with any home improvement or upgrade project, before you install solar panels, it's important to consider all of the financing options available to you and determine which one best suits your needs.

But before you install solar panels, it's worth understanding your financing options. The way you pay for solar directly impacts your total savings and how quickly you'll break even on your investment. Whether you have cash on hand, prefer monthly payments, or want to keep your capital available for other opportunities, there's a financing option designed for your situation.

There are three main ways to pay for your home solar system: upfront with cash, a solar loan, or through a lease or power purchase agreement (PPA).

If you can't afford to pay for your system out of pocket—or don't want to tie up that capital—solar financing allows you to spread the cost over time through a loan or lease. A typical 12 kW solar panel system costs about $29,649 before incentives, based on thousands of quotes in the EnergySage Marketplace.

Each financing option offers different trade-offs between upfront costs, long-term savings, and capital flexibility. The right choice depends on your financial priorities, whether you value maximum solar returns or prefer to keep your cash available for other investments.

Cash purchase

Buying your solar panel system outright delivers the highest long-term returns. You'll avoid interest payments, own your system from day one, and keep your investment working for you over 25+ years. This option is best for homeowners with available capital who want to maximize their return on investment and don't need to preserve liquidity for other opportunities.

The simplicity is appealing: no loan paperwork, no interest calculations, no escalating lease payments, and no monthly bills after installation. You'll increase your home value and qualify for any available state incentives.

The main tradeoff is upfront cost. You're also responsible for any maintenance not covered by warranties, though most quality systems require minimal upkeep. It typically takes 10.5 years to break even, but after that point, the electricity is essentially free.

A cash purchase makes sense if:

• You have the funds to pay for a solar panel system with cash upfront

• You want to maximize the financial benefits of going solar

• You want to take advantage of any available state tax incentives and rebates

• You want to own your solar system outright

• You don't need to preserve capital for other opportunities

Solar loan

Solar loans let you own your system without paying upfront. You'll make fixed monthly payments over 5-25 years while immediately benefiting from energy savings. Many loans offer $0 down, and depending on the terms, you can see net positive cash flow from month one when your energy savings exceed your loan payment.

You preserve cash for other needs while still increasing your home value and qualifying for state incentives. Fixed payments provide cost certainty—unlike utility bills or lease escalators that increase over time.

There are two main types of solar loans: unsecured and secured loans. An unsecured loan doesn't require any collateral for approval, so it will usually have a higher interest rate than a secured loan. A secured loan will tend to have a lower interest rate because it requires you to put up your home as collateral, which is a risky option because if you can't make your solar loan payments for any reason, your lender can foreclose on your house.

Taking out a personal loan or a home equity loan to finance your solar system is also an option worth considering.

But regardless of loan type, interest is the main tradeoff, reducing total savings compared to cash. You're also responsible for maintenance (depending on warranty coverage), some loans don't cover batteries, and moving before the loan is paid off can complicate the sale of your home.

A solar loan makes sense if:

• You don't have enough funds to pay for your solar panel system upfront with cash

• You still want to maximize your savings as much as possible

• You want to take advantage of any available state tax incentives and rebates

• You want to own your solar panel system outright

• You want to preserve some capital for other investments or needs

Solar lease or PPA

With third-party financing, you pay a fixed monthly amount (lease) or per-kWh rate (PPA) for the solar energy your system produces—that rate should be around 10% to 30% below the rate you currently pay for electricity, according to the U.S. Department of Energy. The solar company owns, maintains, and monitors the system while you enjoy immediate savings and keep your capital available for other investments.

You need $0 down to get started, and the solar company handles all maintenance, repairs, and performance issues. If you don't have access to state tax incentives, this is often the easiest path forward. These projects still qualify for the federal tax credit until 2028, although the credit goes to the provider, not directly to you. However, competitive providers should pass some of the credit along through lower monthly payments.

Lower lifetime savings is the main tradeoff. Most leases include annual rate escalators (though payments ideally stay below utility rates), you often won't see a home value increase, and moving can complicate the sale since buyers must assume the agreement, or you'll need to buy it out.

A solar lease or PPA makes sense if:

• You want to preserve maximum capital flexibility for other investments or needs

• You prefer not to own the system or handle any maintenance responsibilities

• You can't easily benefit from state tax incentives

• You value immediate savings without upfront costs

• You want the peace of mind of not having to monitor your system

Note: third-party ownership isn't available in every state. Check out DSIRE's map of states that allow PPAs to see if they're available in your area.

Your financing choice directly impacts which incentives you can claim and how much you'll actually benefit from them.

Tax credits and rebates

If you plan to own your system through a cash purchase or loan, the federal solar tax credit expires for systems installed after December 31, 2025. For most homeowners, this credit is no longer accessible due to limited installer capacity.

But, you can still claim any available state tax credits and rebates directly. The benefit goes straight to you, reducing your out-of-pocket costs or providing a refund on your tax bill.

With a lease or PPA, the solar company owns the system and claims the incentives instead. These projects still qualify for the federal tax credit after this year, and will continue to qualify as long as they begin construction before July 2026 or are placed in service before January 2028.

Competitive providers should pass those tax savings along to you through lower monthly rates. Similarly, if there are state solar tax credits or rebates for businesses where you live, the company claims them, but you should see the benefit reflected in your pricing.

Net metering

Net metering credits you for excess electricity your solar panels send back to the grid. When your system produces more power than you're using, your utility meter literally runs backward, and you bank credits that offset future electricity bills.

Whether you own your system or lease it, you'll benefit from lower electricity bills when your panels overproduce thanks to net metering. The key difference: With ownership, you're the one directly receiving the bill credits. With a lease or PPA, your agreement structure determines how these savings flow to you—typically through the fixed rate you pay for solar electricity, which should factor in net metering benefits. But you'll typically save a bit less with net metering through a lease or PPA compared to ownership.

The best way to pay for solar depends on your financial priorities. If maximizing returns matters most and you don't need that capital elsewhere, a cash purchase delivers the highest lifetime savings.

If you want ownership benefits while keeping funds available for other investments, a solar loan offers fixed payments and full ownership of the system.

If you want immediate savings while preserving maximum capital flexibility, a lease or PPA provides hassle-free solar access—and since these projects still qualify for tax credits, the right provider should pass those savings to you through lower payments.

*Tax credits for these projects should get passed along as lower rates with the right provider.

The right choice isn't about which option is "best"—it's about which trade-offs align with your financial priorities. Consider how long you plan to stay in your home, whether you need to preserve capital for other opportunities, and how much you value simplicity versus maximum returns. Every homeowner's situation is different. Understanding these trade-offs will help you make the smartest decision for your household.