Is a secured or an unsecured solar loan right for you?
There are a variety of solar loan products that you can use to finance the installation of your solar panel system. They can be divided into two broad categories: secured solar loans and unsecured solar loans. Read on to see which one is right for you.
Secured solar loans
With a secured solar energy loan, your lender will require that you promise an asset, usually your home, as collateral for the money you are borrowing. Your home provides “security” to the lender in the event that you can’t repay the loan. If you take out a secured loan, the lender holds a lien on your property, and can take possession to pay off the loan if you default. Organizations that offer secured solar loans include Admirals Bank, Matadors Community Credit Union, and HERO Program.
Secured solar loans overview
- Includes home equity loans and lines of credit, FHA loans, and PACE loans
- Offered by credit unions and national lending institutions
- Provide lower interest rates than unsecured loans
- Interest is generally tax-deductible
- Requires significant equity in your home (except for some FHA loans), a strong credit rating, and favorable debt-to-income ratio
- Lender may be able to repossess your home if you default
- May take several weeks to close the loan
A secured solar loan may be right for you if…
- You are primarily concerned with long-term loan value, rather than short-term cash flow
- You want to maximize the financial benefits of your solar panel system
- You have enough home equity to pay for a solar power system, and are comfortable with using your home as collateral
- You have a tax liability large enough to take advantage of tax deductible interest
- You can wait a few weeks to close the loan
Unsecured solar loans
With an unsecured solar loan, you can borrow money from a lender to install a solar PV system without having to use your house as collateral. The penalty for defaulting on the loan is smaller – they do not require collateral, and the lender cannot foreclose on your home. However, they are also riskier for the lender than secured loans, and this can result in higher interest rates. Examples of organizations that offer unsecured solar loans include SunPower, Green Sky Credit, and EnerBank USA.
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