Beware of the Solar loan.
I kindly request your understanding and leniency in judgment, hoping to land this plane smoothly without any turbulence.
I intend to shed some light on an issue that has been brought to my attention, which may escalate into a problem if not addressed promptly.
You may not be aware of the various options for installing solar panels on your home.
One option is a lease, where you never own the system but enjoy lower monthly payments than your current electricity bill.
In places like the District of Columbia, there's also "free solar," where an investor provides the solar panels at no cost, with no electric bill, while retaining the SRECs credits and tax incentives. This can be a fair deal, as the homeowner avoids the upfront installation costs.
Another option I favor is the Power Purchase Agreement (PPA), where you pay only for the power you generate, at a rate much lower than what you currently pay your power company. This includes installation and offers purchase options after five years.
Then there's the solar loan. It was once a reasonable product when interest rates were low, but today's higher rates often make it more expensive than what homeowners currently pay.
For example, if you need a 10-kilowatt system to meet your energy needs, and a salesperson offers you a loan at 5.99% APR, it might seem attractive. However, this rate is practically unheard of, especially when the WSJ prime rate is at 8.5%.
It's not that you can't find a credit card with a lower rate; it's just that this isn't one of them.
The solar loan, with an interest rate of 5.99%, includes a hidden fee of about 30%, which is embedded in the price, contributing to the issue. Consider a 10-kilowatt system with a cash sales price of $29,000, equating to $2.90 per watt. You'd want to keep the cost around $3.00 per watt for solar to be considered a good deal, unless additional expenses like tree removal and roof replacement are necessary.
Thus, the cash price of $29,000, minus a 30% tax credit, results in a net price of $20,300 installed on your roof.
Now, if we take that same favorable price of $29,000 and tack on the 30% fee, the new loan amount becomes $37,700. Remember, this fee is associated with reducing the rate to 5.99%.
The monthly payment, calculated on a sales price of $37,700, presumes you will repay the 30% tax credit to the loan company within 19 months.
Here's how the loan breaks down: $150 per month for 18 months. After you file your taxes and repay the $8,700, your payment stays at $150 per month. However, if you don't repay the 30%, your payment increases to $232 starting the 19th month, which is likely more than what you were paying for electricity before switching to solar.
It's important to remember that not everyone is eligible for the 30% tax credit, as it depends on whether their deductions or income align. This detail is often omitted.
My goal isn't to disparage solar loans, but I do believe there are some unethical practices due to a lack of information and education on the part of both the solar representative and the homeowner.
This is why my role as a solar energy consultant is challenging, given the regrettable circumstances some homeowners find themselves in.
Imagine a senior citizen on a fixed income being approached by a door-to-door solar representative, only six months into the job, who pitches a product that promises savings and a fixed monthly payment, with the assurance that they own the system.
He continues to sell the 30% tax credit included in the payment without asking if they still pay taxes and qualify for the credit. The homeowner signs the agreement, the system gets installed, and when they attempt to claim the tax credit and don't qualify, the payment increases by $80, and the solar representative is nowhere to be found.
This is not fake news; it happens daily. Solar is an incredible product and can be effective, but we need to be well-informed before making such a commitment.
My suggestion for the solar loan is to opt for a higher APR that's closer to the current prime rate, which will help eliminate the higher fees. Ensure that the payment in the 19th month is less than your current average monthly electric bill, in the event that you don't qualify for the tax credit.
I hope this is helpful.