Secured or Unsecured Solar Loan: Which Solar Financing Option is Best for a Homeowner?

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Last Updated on November 1, 2023 by admin

Secured or Unsecured Solar Loan: Which Solar Financing Option is Best for a Homeowner?

Solar Financing

As a homeowner, when you decide to go solar, choosing between solar financing options are important consideration. Unsecured solar loan and Secured Solar Loans are main types.

When it’s to solar installation, a homeowner has 3 choices of payment. The first is paying cash and owning the solar panel system. However, Solar installation is an expensive process. For promoting renewable energy usage and going solar easily, there are other financing options available. As if a homeowner wants to install solar panels but can’t afford to pay instantly, he can choose between the “Solar Lease” or “Solar Loan” option.

Although, a Solar lease is a good financing option for those who wish to go solar but don’t have enough cash in hand. But, On the other hand, with solar leasing, you cannot become the owner of the solar panel system. However, if you choose the leasing option, you sign a Power Purchase Agreement (PPA). This agreement declares that you are not the owner of the installed solar. An additional benefit is that a homeowner doesn’t need to even bear installation costs. The PPA party is responsible for all the upfront costs in this case.

In case a homeowner is not able to pay for solar installation, Solar Loan is a better option than Solar Lease. In this article, we will discuss different types of Solar loans. Also, for homeowners’ understanding, we will explain how a Solar Loan is the better solar financing option.

What is a Solar Loan?

Solar loans make it simple and affordable for customers to buy a home photovoltaic system. Like other personal loans, the solar loan process is almost the same. Through this, a lender pays you for the solar panel installation process. And likewise, you commit to return the amount with some interest rate at a specific time.

To finance a solar installation, there are various types of solar loans available for homeowners. Despite this, generally, there are two basic categories of solar loans:

1- Secured Solar Loan

2- Unsecured Solar Loan

Unsecured Solar Loan

1-    Secured Solar Loan

A secured loan, also known as collateral, is a loan that is supported by the financial assets of the borrower.

Mostly, A secured loan is often secured by either your house or the solar panel equipment. The lender can now provide lower interest rates and better terms. This is because they are protected against your inability to repay the loan.

A secured loan typically has a term of 10 to 15 years. Depending on your credit score, the interest rate falls between 3% and 8%. The related costs come to about $1,000.

Different Types of Secured Loans

Secured loans are of different types like:

  • Federal Housing Authority Loan (FHA) 
  • Home Equity Line of Credit (HELOC)
  • Home Equity Loan
  • Property Assessed Clean Energy (PACE)

Although Property Assessed Clean Energy Loan & Federal Housing Authority (FHA) loans are also good options. But the most popular solar loans are “Home Equity Line of Credit (HELOC)” & “Home Equity Loan“.

Home Equity Line of Credit (HELOC): In effect, when you choose the HELOC loan option, you open a credit account with your bank. This allows you to withdraw funds when you need up to a fixed amount with a variable interest rate over time. These are usually preferable for remodels whose final cost isn’t yet determined. However, If you are adding solar panels in addition to other house upgrades, they might be a suitable choice for solar.

Home Equity Loan: With Home Equity Loan, Throughout the loan, you will receive a lump sum payment with a fixed interest rate. For solar panel installations, this method typically works better because you’ll know the total price upfront and can just deduct that amount.

Secured Solar Loan
Secured Loan Drawbacks

2- Unsecured Solar Loan

 Unsecured loans do not require security; instead, they rely on the borrower’s credit history and financial status. This indicates that you can finance your solar energy equipment without losing one of your assets. The legal authority of a lender to take one of your assets to pay off a debt is known as a lien.


However, Unsecured loans often carry a higher risk for the borrowers as they lack security.

Unsecured loan benefits
Unsecured loan drawbacks

How to Choose Between Solar Financing Loans: Secured or Unsecured?

As a homeowner, you may get confused about which solar loan is suitable for you. Both types of solar loans have their pros and cons. It depends upon the financial condition of the customer like which loan is beneficial for him. 

secured or unsecured loan

However, Secured or  Unsecured Loan, whatever type of solar loan you choose, make sure to completely check all the hidden fees, etc.

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