The Four Ways to Go Solar
There are four main ways to finance a residential solar installation, each with a different ownership structure, upfront cost, long-term financial profile, and tax outcome. Knowing each option helps you pick the one that best fits your situation and goals.
Cash purchase: You pay the full installation cost upfront and own the system outright. You claim the 30% federal tax credit on your next tax return. All electricity savings are yours indefinitely. The highest upfront cost, but the strongest long-term financial return.
Solar loan: You borrow the installation cost from a lender and pay it back in monthly installments over 5 to 20 years. You own the system and claim the full 30% federal tax credit. Monthly loan payments are ideally less than your electricity bill savings, which makes the loan cash-flow positive from day one. Once the loan is paid off, all electricity savings are profit.
Solar lease: The installer owns the system and you pay a monthly lease payment to use it. Your payments are typically lower than your old electricity bill. You do not own the system and cannot claim the federal tax credit. The installer claims it. Lease payments typically climb 1% to 3% a year.
Power Purchase Agreement (PPA): The installer owns the system and sells you the electricity it generates at a per-kWh rate lower than your utility rate. You do not own the system and cannot claim the tax credit. You pay only for the electricity produced, not a flat monthly fee.
Solar Loans in Depth
Solar loans are available from solar installers (who partner with specialty lenders), banks, credit unions, and dedicated solar financing platforms. LightStream, Sunlight Financial, and Mosaic are among the major solar-specific lenders. Rates typically run 5% to 9% APR for well-qualified borrowers.
The most important loan feature to check beyond the rate is whether it is a true loan or a dealer fee loan. Dealer fee loans charge the installer an origination fee that usually gets passed to the borrower through an inflated system cost. A loan with a 0% APR promo rate but a 30% dealer fee is not a good deal. You are financing a system that costs 30% more than it should.
Standard solar loans (like LightStream’s personal loan product) charge the rate directly to the borrower with no dealer fee and no inflated system cost. Comparing the actual total cost is essential when judging financing offers from installers.
When Leases and PPAs Make Sense
Leases and PPAs make the most sense for homeowners who cannot or prefer not to qualify for a solar loan, who have limited tax liability (and therefore cannot fully benefit from the federal tax credit), who want predictable monthly energy costs with no maintenance responsibility, or who are in a home they plan to sell within five to seven years where the benefit of ownership is limited.
Both options provide real electricity savings versus grid power with no upfront cost. For homeowners who cannot afford a cash purchase or do not qualify for a loan, a lease or PPA can still deliver meaningful monthly savings and environmental benefit.
The Long-Term Financial Comparison
On a $25,000 system over 25 years: a cash purchase nets roughly $45,000 to $65,000 in electricity savings after the $25,000 cost and $7,500 tax credit recovery, depending on utility rate increases. A loan at 7% over 12 years nets roughly $30,000 to $45,000 in lifetime savings after loan payments. A lease or PPA nets roughly $15,000 to $25,000 in lifetime savings. These estimates swing widely by location, utility rate, and system production.
The ownership gap widens over time because owned systems have no ongoing payment obligation after the loan is repaid, while lease and PPA payments continue for the full contract term (typically 20 to 25 years) and typically rise annually.