When you decide to go solar, one of the first decisions you face is how to pay for it. The three main options are buying outright with cash, financing with a solar loan, or leasing the system. Each option has dramatically different financial implications over the 25-year life of a solar system. In this article, we break down the math so you can make the best decision for your situation.
The Three Ways to Go Solar
1. Cash Purchase
You pay the full cost upfront. You own the system, claim the 30% federal tax credit, and keep 100% of the savings. This offers the highest long-term return but requires significant upfront capital.
2. Solar Loan
You finance the purchase with a loan (typically 10-20 years). You still own the system and claim the tax credit. Monthly loan payments are usually less than your current electricity bill, so you start saving from day one. Interest costs reduce your total return compared to cash.
3. Solar Lease / PPA
A third-party company owns the panels on your roof. You pay a fixed monthly lease payment or a per-kWh rate (PPA). No upfront cost and no maintenance responsibility, but you do not own the panels, cannot claim the tax credit, and save less overall.
Side-by-Side Comparison
Here is how the three options compare for a typical 7 kW system valued at $21,000 in Phoenix, AZ:
| Factor | Cash Purchase | Solar Loan | Lease/PPA |
|---|---|---|---|
| Upfront Cost | $21,000 | $0 | $0 |
| Federal Tax Credit | -$6,300 | -$6,300 | N/A (company claims) |
| Net Cost | $14,700 | $26,500 (with interest) | $0 |
| Monthly Payment | $0 | $145/mo (15-yr loan) | $120/mo (escalating) |
| Year 1 Savings | $1,750/yr | $110/yr | $540/yr |
| 25-Year Total Savings | $48,000+ | $30,000+ | $8,000 - $15,000 |
| Own the System | Yes | Yes | No |
| Home Value Increase | 3-4% | 3-4% | Minimal |
| Maintenance | Your responsibility | Your responsibility | Company handles |
| Selling Your Home | Easy (asset transfers) | Pay off loan or transfer | Complex (buyer takes over) |
When Buying Makes Sense
Buying solar (either cash or loan) is the better financial choice for most homeowners. Here is when buying is clearly the right move:
- You have the cash or can get a low-interest loan -- A loan at 5% or less makes the math work well
- You plan to stay in your home 5+ years -- More time means more savings
- You have sufficient tax liability -- You need to owe enough in federal taxes to claim the 30% credit
- You want maximum long-term savings -- Ownership delivers 2-5 times more savings than leasing over 25 years
- You may sell your home -- Owned solar adds significantly more to home value
When Leasing Makes Sense
While leasing is generally the less profitable option, it can make sense in certain situations:
- You have no upfront capital and cannot qualify for a loan -- A lease requires $0 down and no credit check with some providers
- You have little or no federal tax liability -- If you cannot use the 30% credit, the economics of ownership are less favorable
- You want zero maintenance responsibility -- The leasing company handles all repairs and monitoring
- You want immediate savings with zero risk -- Most leases guarantee lower monthly costs than your current electricity bill
The 25-Year Math: Detailed Example
Let us look at the full 25-year financials for a homeowner in Los Angeles, CA with a 7 kW system:
Cash Purchase
- System cost: $22,000
- Federal tax credit: -$6,600
- Net cost: $15,400
- Year 1 savings: $2,200
- 25-year savings (3% annual rate increase): $80,500
- 25-year net profit: $65,100
Solar Loan (5.5%, 15 years)
- Monthly payment: $180/mo for 15 years = $32,400 total paid
- Federal tax credit: -$6,600 (applied to loan balance)
- Effective cost: $25,800
- 25-year savings: $80,500
- 25-year net profit: $54,700
Solar Lease ($130/mo, 2.9% annual escalator)
- 25-year total lease payments: $56,100
- 25-year electricity savings: $80,500
- 25-year net profit: $24,400
The difference is stark. Cash purchase yields $65,100 in net profit, a solar loan yields $54,700, and a lease yields just $24,400. Buying solar generates 2-3 times more savings than leasing.
Beware of Lease Escalators
Many solar leases include an annual escalator of 1-3% per year. This means your monthly lease payment increases every year. A $120/month lease with a 2.9% escalator becomes $240/month by year 25. If electricity rate increases slow down or your utility lowers rates, you could end up paying more for your lease than you would for grid electricity. Always read the escalator clause carefully and run the numbers for the full lease term.
What Happens When You Sell Your Home?
How each option affects home sales:
- Cash purchase: The panels are your asset and transfer with the home. They add 3-4% to home value. Simple and attractive to buyers.
- Solar loan: If the loan is paid off, same as cash purchase. If not, you either pay off the remaining balance at closing or transfer the loan (if the lender allows it and the buyer qualifies).
- Solar lease: The buyer must agree to take over the lease and qualify with the leasing company. Some buyers are reluctant to take on a lease, which can complicate or delay the sale. Some leasing companies charge a transfer fee.
Solar Loans: What to Look For
If you choose to finance with a solar loan, here are the key factors to compare:
- Interest rate: Look for rates under 6%. Some credit unions offer solar-specific loans at 3-5%.
- Loan term: 10-15 years is ideal. Longer terms reduce monthly payments but increase total interest paid.
- Dealer fees: Some loans bundle dealer fees into the loan amount, effectively increasing the cost. Ask for a breakdown.
- Prepayment penalties: Ensure there are no penalties for paying off the loan early (using your tax credit, for example).
- Secured vs. unsecured: Secured loans (using your home as collateral) offer lower rates. Unsecured loans have higher rates but do not put your home at risk.
Our Recommendation
For most homeowners, buying solar is the clear winner. If you have the cash, a cash purchase delivers the highest return. If not, a solar loan with a competitive interest rate is the next best option. Only consider a lease if you cannot qualify for a loan, have minimal tax liability, and want guaranteed (but smaller) savings with zero hassle.
Whatever option you choose, the first step is understanding what solar costs in your area. Use our city-specific cost calculator to get started, and compare quotes from multiple installers in cities like San Antonio, TX, Jacksonville, FL, or Columbus, OH.