Financing Solar Panels: Loan, Lease, or Power Purchase Agreement?

Solar panel financing generally falls into three categories: a solar loan, a solar lease, and a power purchase agreement, or PPA. Each has meaningfully different implications for ownership, tax benefits, and what happens if you sell your home before the system is paid off.

A solar loan, whether secured through a home improvement lender or a dedicated solar financing company, lets you own the system outright once it is paid off. This is the only structure that qualifies for the federal solar tax credit and any applicable state incentives, since ownership is a requirement for most of these programs.

A solar lease involves paying a fixed monthly fee to use panels owned by the leasing company, similar to leasing a car. You do not own the system and are not eligible for tax credits, but you also avoid maintenance responsibility and often pay less upfront than a loan requires.

A power purchase agreement is structured differently again: instead of a fixed lease payment, you pay for the actual electricity the system produces, usually at a rate lower than your utility company charges. Like a lease, the company retains ownership and the associated tax benefits.

Selling a home with a solar loan is generally straightforward, since the system is an asset that transfers with the home once the loan is paid off or assumed by the buyer. Leases and PPAs can complicate a home sale, since the new owner typically needs to qualify to take over the contract, which some buyers are unwilling to do.

If maximizing long-term savings and taking advantage of available tax credits is the priority, a solar loan is usually the stronger financial choice despite the higher upfront commitment. If minimizing upfront cost and maintenance responsibility matters more, a lease or PPA may be more practical, with the tradeoff of lower total savings over the life of the system.