Solar Financing: Navigating the Complex Worlds of Today and Tomorrow

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The world of solar financing is a unique and often misunderstood part of the solar purchase process. With loan terms that span from one year to 30 years, reamortization schedules based around solar incentives, and interest rates changing constantly, solar financing gets complex fast.

With the recent passage of H.R. 1, the federal solar tax credit is expiring at the end of 2025, drastically altering the state of owned residential solar. The majority of the US doesn’t have additional solar incentives to apply toward a reamortization loan, so that model of loan will likely have to change in a post-ITC world.

To discuss the complex world of solar financing – how it currently works and how it might look in the future, we sat down with one of our in-house financing experts, Stosh Hess, Western Region Account Manager, to get his expert opinion. You can view that discussion in its entirety at the above link. Below, we’ll break down some of the key discussion topics covered in the interview.

How Solar Financing Works Now

Today, the most popular forms of solar financing operate under a reamortization model, meaning the loan is structured so that the homeowner applies funds from their federal solar tax credit to the balance of their loan.

Typically, loans will start with a lowered monthly payment for anywhere from 12 to 18 months. Before the end of the initial term, a homeowner would need to apply the full value of their 30% federal tax credit to the loan to maintain the monthly payment. If they put in less than the 30% value, or no money at all, the monthly payment increases for the remainder of the term.

In many cases, this schedule allowed homeowners to maintain a loan payment that was lower than their monthly electric bills. However, in other cases, homeowners were not able to put money into the loan, resulting in paying the same or more for the solar loan than for their previous electric bill.

The main confusion often surrounds the tax credit itself. The federal solar tax credit is non-refundable, meaning homeowners don’t receive the value of their credit as a tax refund, so to reinvest money into the loan, they need to come up with that from somewhere else.

Dealer Fees

A hallmark of any loan, but in particular solar loans, is dealer fees. These aren’t new by any means, but in recent years have become a major pain point among prospective solar homeowners. So what are dealer fees?

Dealer fees are costs added to a loan imposed by the financier for providing financing. Think of them this way: when you go to buy a car, it might be on the lot for $20,000. Once the dealer gets you approved for financing, your total loan may be $23,000. Dealer fees are basically flat amounts separate from interest that get added to loans.

Financing in a Post-ITC World

In a world without the Residential Clean Energy Credit, solar loans won’t be able to base a monthly payment structure around incentives. As Stosh notes in the video above, we’re already seeing a push toward simpler, transparent, no-dealer fee options. Homeowners increasingly want clean, straightforward loans without hidden costs or sudden changes in monthly payments.

Stosh explains in the video that solar loans range from one year to thirty years, and he doesn’t see that changing. What he does expect to happen is a push toward localization. Rather than a few massive companies leading the financing space, Stosh sees local banks and credit unions becoming a more popular option and potentially even partnering with local installers.

Be sure to check out the video above to hear an in-depth analysis of the solar financing of today and tomorrow.

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