Solar Financing Options: Loans vs Leases vs PPAs Explained

Three paths to going solar without paying cash upfront. Each one shifts risk, ownership, and long-term savings differently, and the best choice depends on your tax situation and how long you plan to stay in the home.

Roughly 60 % of residential solar installations in the US are financed rather than purchased outright. The three dominant structures are solar loans (you own the system and repay the lender), solar leases (a third party owns the system and you pay fixed monthly rent), and power purchase agreements or PPAs (a third party owns the system and you buy electricity from it at a contracted rate). Each approach changes who captures the federal tax credit, who handles maintenance, how the system affects home resale, and how much you save over 25 years.

Cash purchases deliver the highest lifetime savings because you avoid interest charges and keep the full tax credit. But cash is not always available or the best use of capital. A well-structured solar loan can deliver positive cash flow from month one if the monthly payment is lower than the utility bill reduction. Leases and PPAs require no money down and no credit qualification in some cases, but they sacrifice long-term savings and complicate home sales. The right choice depends on your tax appetite, liquidity, credit profile, and time horizon.

Three financing paths

All three structures achieve the same physical result: panels on your roof producing electricity. The difference is entirely financial and contractual. With a loan, you borrow money, own the system from day one, claim the 30 % federal tax credit yourself, and build equity in an asset that appreciates your home value. With a lease or PPA, a financing company owns the hardware, claims the tax credit, and either charges you rent (lease) or sells you electricity at an agreed rate (PPA). You get lower bills with no upfront cost, but the third party captures most of the economic upside over the contract term.

Solar loans explained

Solar loans come in two forms: secured (using the solar equipment or your home as collateral) and unsecured (personal loan based on creditworthiness). Secured loans offer lower interest rates, typically 4 % to 7 % in 2026, with terms of 10 to 25 years. Unsecured solar loans run 6 % to 12 % with shorter terms of 5 to 15 years. Many installers partner with specific lenders and roll the loan into the sales process, but you are not obligated to use their financing. Shopping your own credit union or bank often yields better terms.

The critical advantage of a loan is ownership. You claim the 30 % federal Investment Tax Credit (ITC), which in 2026 returns roughly $5,000 to $7,000 on a typical system as a dollar-for-dollar reduction in your federal tax liability. You also benefit from any state or local incentives, SRECs, and the full home value increase. The loan payment is a known fixed cost, while your avoided utility bill tends to rise with rate inflation, widening the savings gap over time.

Watch out for dealer fees

Many solar loans include "dealer fees" of 15 % to 30 % baked into the loan principal. The installer receives a discounted payout from the lender and the borrower repays the full amount. This effectively raises your true APR well above the stated rate. Ask every lender for the "net proceeds" and compare total cost of capital across offers. A loan advertising 1.99 % APR with a 25 % dealer fee often costs more than a straightforward 6.5 % loan with no fee.

Solar leases explained

A solar lease is a rental agreement. A financing company (SunRun, Sunnova, or similar) installs panels on your roof at no cost to you, retains ownership, and charges a fixed monthly payment for 20 to 25 years. The payment is set below your current utility bill to guarantee immediate savings, typically 10 % to 30 % lower than what you would have paid the utility. Most leases include an annual escalator of 1 % to 3 %, which raises your payment each year on the assumption that utility rates will rise faster.

Because the leasing company owns the system, they claim the tax credit and handle maintenance, monitoring, and inverter replacement. You avoid all performance risk but sacrifice most of the long-term economics. Over 25 years, a homeowner who buys outright or finances with a loan typically saves $15,000 to $30,000 more than a leaseholder, depending on system size and local rates. Leases also complicate home sales: the buyer must assume the lease or you must buy out the remaining term, which can delay closings.

Power purchase agreements

A PPA is functionally similar to a lease but structured as an electricity sale rather than equipment rental. Instead of a fixed monthly payment, you pay a per-kilowatt-hour rate for whatever the system produces. The PPA rate is set below your utility rate, and an annual escalator (typically 1 % to 2.9 %) applies. In months of high production you pay more; in winter or cloudy stretches you pay less. The PPA company owns the system, claims incentives, and handles maintenance.

PPAs are popular in states where leases are restricted or where utilities have high tiered rates that make per-kWh pricing more intuitive. The economic profile is nearly identical to a lease over 25 years. The key risk with PPAs is the escalator: if utility rates rise slower than your contracted escalator, your PPA savings erode or even turn negative in later years. Always model the worst case scenario where utility rates grow at only 1 % to 2 % per year and see whether the PPA still saves money in years 15 through 25.

Side-by-side comparison

• Ownership: Loan = you own. Lease/PPA = third party owns.
• Tax credit: Loan = you claim 30 %. Lease/PPA = financing company claims it.
• Upfront cost: Loan = $0 down possible. Lease/PPA = $0 down standard.
• Monthly cost: Loan = fixed payment. Lease = fixed + escalator. PPA = variable + escalator.
• Maintenance: Loan = your responsibility. Lease/PPA = owner handles it.
• Home sale: Loan = system conveys with home. Lease/PPA = buyer assumes contract or you buy out.
• 25-year savings: Loan > Lease/PPA by $15,000 to $30,000 typically.

How to choose

If you have sufficient federal tax liability to absorb the 30 % credit and decent credit for a competitive loan rate, financing with a loan delivers the best combination of no upfront cost and strong lifetime savings. If you lack the tax appetite (retirees, low-income households) or want zero maintenance responsibility, a lease or PPA provides immediate savings with minimal hassle. If you plan to sell the home within five to seven years, a loan with no prepayment penalty keeps your options open, while a lease can become a negotiating liability at closing.

Common questions