How Does Solar Financing Work in California?

Solar financing in California offers a practical pathway for homeowners and businesses to adopt clean energy without the burden of upfront costs. Instead of paying cash for a solar system, which can be expensive, residents can choose from a variety of financing options that spread payments over time. These options include solar loans, solar leases, and third-party ownership models like power purchase agreements (PPAs). Each of these financing options is tailored to different financial situations and energy goals.

While considering solar financing, it is important to also weigh the benefits of buying your solar energy system outright with cash. A cash purchase gives you full ownership and access to all available solar incentives, including the federal Investment Tax Credit (ITC), which currently offers a 30% deduction on the total system cost. However, financing options like solar loans also allow you to claim these incentives. On the other hand, you cannot claim them with a solar lease or PPA because the solar installation is owned by a third party. Despite this, many Californians opt for third-party financing because it helps them to go solar with zero upfront investment. They can still enjoy immediate savings on their electricity bills with these “free solar” alternatives.

Cash Purchase vs. Solar Financing

California’s solar-friendly policies further sweeten the deal. In addition to the ITC, the state offers programs like the Self-Generation Incentive Program (SGIP), which provides generous rebates for solar battery storage, and the DAC-SASH program, which installs free solar panels for low-income households in disadvantaged communities. Property owners also benefit from a property tax exclusion for solar installations, ensuring that adding solar won’t increase their tax burden. These solar incentives make financing even more attractive, especially for those who want to maximize savings while minimizing initial costs.

Solar Financing Options in California

California’s solar market is one of the most mature in the country, and its financing landscape reflects that. Homeowners and businesses can choose from several flexible options depending on their budget, credit profile, and long-term energy goals. Solar loans are particularly popular, allowing residents to own their systems while paying over time. These loans can be secured or unsecured, with terms ranging from 5 – 20 years. Secured loans typically offer lower interest rates but require collateral, such as home equity, while unsecured loans are easier to obtain but may come with higher rates.

Solar leases and PPAs, both forms of third-party ownership (TPO), are also widely used. In a solar lease, you pay a fixed monthly fee to use the system, while in a PPA, you pay for the electricity the system generates, usually at a rate lower than your utility’s. These models are ideal for those seeking free solar panels with no upfront cost, though they don’t offer the same long-term savings or access to solar incentives as ownership does. Still, they remain attractive for Californians who prioritize simplicity and immediate bill reduction.

Common Solar Financing Models

While exact adoption rates vary, industry estimates suggest that nearly half of California’s residential solar systems are financed through loans, with another third using leases or PPAs. The remaining portion consists of cash purchases, often by homeowners with the means to invest upfront and reap the full financial benefits over time.

Types of Solar Loans in California

Solar loans in California are widely available and come in various forms to suit different financial needs. Homeowners can secure loans through solar installers, banks, credit unions, and specialized clean energy lenders. Companies like Mosaic, LightStream, and Dividend Finance offer unsecured solar loans with competitive rates and streamlined approval processes. Meanwhile, traditional lenders and credit unions may provide secured loans that leverage home equity for lower interest rates.

The main distinction between secured and unsecured solar loans lies in collateral and cost. Secured loans generally offer lower interest rates (as low as 2.99%) but require borrowers to put up assets like their home. Unsecured loans, while easier to obtain, often come with rates between 5% and 8%, depending on creditworthiness. Both types of loans allow homeowners to own their solar systems and qualify for solar incentives, making them a smart choice for long-term savings.

How to Find the Best Solar Loans in California

Finding the best solar loan in California requires careful evaluation of loan offers while weighing several key factors. Interest rates, loan terms, repayment flexibility, and dealer fees all play a role in determining the overall value of a loan. Ideally, homeowners should look for loans with interest rates below 5%, no prepayment penalties, and terms that align with their financial goals. Some lenders offer combo loans that assume the borrower will apply their 30% federal tax credit toward the principal within the first year, reducing monthly payments and total interest.

Loan duration is another important consideration. While shorter terms result in higher monthly payments, they also reduce the total interest paid over time. Longer terms, such as 15 or 20 years, offer lower monthly payments but may cost more in the long run. Ultimately, the best solar loan balances affordability with long-term savings, allowing homeowners to enjoy the benefits of solar energy without financial strain.

Can I Get Free Solar Panels in California?

Yes, Californians can access solar systems with no upfront cost through third-party financing options like solar leases and power purchase agreements. These models are often marketed as “free solar” because they eliminate the need for an initial investment. In a solar lease, the homeowner pays a fixed monthly fee to use the system, while in a PPA, they pay for the electricity the system produces, typically at a rate lower than their utility’s.

Both options include system maintenance and monitoring, making them convenient for those who prefer a hands-off approach. However, since a free solar system is owned by a third party, the homeowner cannot claim solar incentives or benefit from increased property value. Despite these limitations, solar leases and PPAs remain popular in California, especially among residents who want immediate savings without the responsibility of ownership.

Solar Leases vs. Power Purchase Agreements (PPAs)

How to Get Solar Financing in California

Securing solar financing in California is a straightforward process, but the steps required vary depending on the chosen method. For solar loans, homeowners typically start by getting quotes from installers or lenders, comparing interest rates, loan terms, and fees. A credit check is usually required, and approval depends on income, debt-to-income ratio, and credit score. Once approved, the system is installed, and the homeowner begins repayment, often with the option to re-amortize the loan after applying the federal tax credit.

For solar leases and PPAs, the process is even simpler. Homeowners select a provider, review the contract terms, and schedule installation. These options often require little to no credit check, making them accessible to a wider range of residents. PACE financing, another option available in California, allows repayment through property taxes and is based on home equity rather than credit score. It’s a useful tool for those who may not qualify for traditional loans but still want to invest in solar energy.

Credit score plays a significant role in solar loan approval and interest rates. A higher score can unlock better terms and lower rates, while a lower score may limit options or increase costs. Importantly, taking out a solar loan can impact your credit score, initially through a hard inquiry and later through payment history. Responsible repayment can improve your score over time, making solar financing not just an investment in clean energy, but also in financial health.