4 Ways to Finance Solar Panels

By Leigh A. Morgan

March 14, 2025

Solar is one of the cleanest forms of energy around, but many homeowners are hesitant to make the switch. Sure, you want to be more sustainable, but you don't want to feel like the sun's rays are burning a hole through your wallet.

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The good news is that there are several solar panel financing options, plus state and federal tax incentives to make solar energy more affordable.

What Are Some Ways to Finance or Lower the Cost of Solar Panels?

If you're ready to install a home solar system, there are two main ways to defray the costs. The first is solar panel financing, which involves borrowing money and paying it back over time. Banks, consumer financing companies and even solar installation companies offer multiple financing options. The second is to take advantage of tax credits, rebates and other incentives designed to make solar systems more affordable.

1. Open a Home Equity Loan or Line of Credit

A home equity loan allows you to borrow against the equity in your home. Equity is the difference between your home's value and how much you owe on the mortgage. For example, if you have a home value of $400,000 and a mortgage balance of $200,000, you have $200,000 in equity. If you're approved for a home equity loan, you'll receive a lump sum after you sign the paperwork.

A home equity line of credit is similar, as it allows you to borrow against the equity in your home. The main difference is that you establish an open-ended line of credit instead of receiving a lump sum of cash. This allows you to spend money at any time during the draw period, which usually lasts for 10 years.

One advantage of HELOCs over home equity loans is that a HELOC only requires you to make interest payments during the draw period. A home equity loan requires monthly payments of the principal loan balance plus interest. However, HELOCs tend to have variable interest rates, which means your interest rate will go up and down as the market changes. Home equity loans usually come with fixed rates, making it easier to estimate your monthly costs.

If you pursue this option, be sure to make your payments as agreed. Otherwise, the lender might force the sale of your home, leaving you scrambling to find a place to live.

2. Apply for a Personal Loan

If you don't have enough equity or you're not keen on borrowing against your equity, another option is to apply for a personal loan. This type of loan is typically unsecured, which means no one can take your house or other property if you aren't able to pay it back. If you qualify for a personal loan, you'll receive a lump sum of cash and pay it back in fixed monthly installments.

3. Use a Company That Offers Financing

Some solar installation companies partner with trusted lenders, making attractive solar panel financing options available to homeowners. Selected lenders usually offer solar-specific loans, which have terms that aren't included in standard loans. For example, a solar-specific loan agreement may contain language about your obligations if you decide to sell your home after purchasing a solar system.

Some lenders offer unsecured loans, while others will place a lien against your solar panels as soon as you purchase them. A lien indicates that the lender has a legal right to be paid for the panels. If you decide to sell your home, you may have to repay the loan balance as a condition of the sale.

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4. Take Advantage of Tax Incentives

Solar panel financing isn't for everyone. If you don't qualify, don't want to put your home equity at risk or don't want to make monthly payments for several years, using tax incentives is a viable alternative. The Residential Clean Energy Credit allows you to claim up to 30% of the cost of an eligible solar system on your federal tax return.

This 30% credit applies to systems purchased by 2032. In 2033, the credit percentage rate drops to 26%, followed by a drop to 22% in 2034, so now is the best time to take advantage of federal solar incentives. The Residential Clean Energy Credit is a nonrefundable tax credit, so it helps reduce the amount of tax you owe. If you have $0 in federal tax due, you won't receive the excess credit as a refund.

State Tax Incentives

Many states also offer tax credits, rebates and other financial incentives to help make solar systems more affordable. For example, Arizona offers the Residential Solar and Wind Energy Systems Tax Credit, which covers the installation of solar energy devices on residential properties. If you purchase an eligible solar system, you can deduct up to 25% of the cost on your Arizona tax return. No matter how much the system costs, the credit is limited to $1,000.

Check with your state's tax authority to find out what incentives are available in your area.

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