Solar Panels: Should You Lease or Buy?

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Solar panel systems can offer a great way to scale back your utility bills while helping the environment at the same time. But their upfront costs can be pretty pricey: a typical four-kilowatt system for an average-size home in California can cost anywhere between $15,000 to $35,000. However, there are some rebates that you might be eligible for that can offset these costs.

Luckily, you don’t have to come up with a lump sum of money to starting reaping the rewards of a more energy-efficient home and smaller utility bills. You can always finance or lease your solar panel system. The question is, which one of the two options should you choose?

The obvious difference between buying and leasing a solar panel system is in ownership. If you buy it, you own it. If you lease the system, a third party owns it. Making the decision to either buy/finance or lease comes down to looking at several factors, such as the cost, terms of the agreement, maintenance, and savings/returns on your investment.

Leasing Solar Panel Systems

The possibility of leasing solar panel systems made it feasible for many American households to be able to have them installed in their homes without having to pay upfront or be approved for a loan. With $0 down options, leasing has made solar panel systems affordable for many.   

Leasing a solar panel system might be the best route to go if you want to avoid having to maintain or repair it when the need arises. These programs leave those tasks to the supplier, which means homeowners don’t have to worry about adding that chore to their list of obligations.

Leases are generally for 20 to 25 years, after which you may choose to either renew the agreement or buy the system.

Tax credits are available to help cut down on the cost of buying a solar panel system, but not everyone is eligible to take advantage of them. Leasing is more attractive to those who don’t meet the income requirements to benefit from federal or state investment tax credits.

The downfall of a lease program is that homeowners would have to assume a 20- to 25-year obligation, which would then have to be transferred over to a buyer if they sell their home.

Buying/Financing Solar Panel Systems

While leasing is still a popular option, taking out a loan to buy these systems is becoming increasingly common. Finance offerings from various lenders in the residential solar market are growing, especially over the recent past.

One of the reasons that loans are becoming more popular is because they are cost-effective compared to leasing. As the price of solar panel systems continues to gradually decrease, the cost is becoming more and more affordable for homeowners.

Another reason why financing is catching up to leasing is because loan programs for these systems are becoming more widely available from different sources outside of the solar panel suppliers themselves. Even as recently as a few years ago, financing was only available from the solar panel system suppliers, and not from banks. Back then, banks and lenders weren’t experienced in structuring these types of loans, especially for borrowers who may not have been eligible to utilize any tax credits to save money on their utility bills.

Loans for solar panel systems are typically available for 10- to 20-year terms, with interest rates that run anywhere between 3% to 8% for those with a decent credit score.

Buying your solar panel system can help you realize significantly more savings on your monthly utility bills compared to leasing. In fact, you can save between 40% and 70% on the cost of electricity over the lifetime of the system and take advantage of what is essentially free electricity for as long as the system lasts (which is typically up to 30 years). Leasing, on the other hand, will save you between 10% to 30% off of electricity costs, depending on your home’s construction and any incentives you receive from the state.

Of course, one of the obvious downfalls of an owned system is that you are the one who’s responsible for maintaining and/or repairing it. Having said that, today’s solar equipment is quite robust and comes with warranties which can help to take some of the load off of you should any repairs need to be made.

Tax Credits to Cover Part of the Cost of Solar Panel Systems

In 2008, solar tax credits were executed as part of the Emergency Economic Stabilization Act, which included billions of dollars in incentives for the use of renewable energy technologies such as solar panel systems. In late 2015, legislation renewed these tax credits for five years. As long as homeowners have a federal tax liability, they’ll be able to take advantage of this one-time solar investment tax credit, which offers a 30% rebate on the entire cost of the system.

How Does Leasing Versus Buying Count at Resale?

When it comes down to deciding which route to take, you might also want to consider the resale value of your home if you ever happen to sell at some point in the future. It’s been estimated that host-owned solar systems can add approximately $15,000 to the value of a home, while leased systems make homes more difficult to sell.

A home that comes with an owned solar panel system is viewed as more valuable since the property comes with this additional asset. Not only that, it can even be rolled into the mortgage if necessary. On the other hand, a home with a leased solar panel system comes with an added monthly bill that can last 20 years. Typically, buyers look more favorably on a home with an owned system as opposed to one that comes with added monthly payments associated with a leased system.

The Bottom Line

The choice between buying versus leasing your solar panel system will depend on your particular situation. If the cost to borrow is low and your income makes you eligible for solar tax benefits, perhaps buying might be the best option. You’ll gain a valuable asset for your home and you can take full advantage of the cost savings of the system.

On the other hand, if your income isn’t high enough to offset the tax credits, then leasing might be the best route for you. It will still save you money, and it won’t cost you a dime upfront. At the end of the day, knowing what each option offers is key to helping you make the best decision.