Best Way to Buy Solar Panels: Monthly Financing vs. Cash Savings

Solar panels are known to save you money in the long run, but most people don't have thousands of dollars laying around for a cash purchase.

The upfront cost of a rooftop solar panels system can be hefty -- between $15,000 and $30,000. 

My CNET colleague Dashia Milden used the concept of a "sinking fund" to save up for a large purchase: in her case, expensive seats on the floor at a Beyoncé show. A sinking fund is basically just a savings account with a specific purchase in mind. So, rather than saving for some unforeseen future emergency, need or desire, you're contributing toward something more tangible. It got us thinking about whether or not it makes sense to take a similar approach to paying for a rooftop solar panel system.

With savings rates near their most favorable levels in a generation, starting to save now for a big purchase like a renewable energy system might seem like a great idea. For some homeowners it certainly might be, but solar panels are a very different purchase to concert tickets, since solar panels are an investment that will save you money on utility costs. The concert tickets are a one-and-done purchase.

The Federal Reserve's rate hikes this past year makes savings rates better but borrowing more expensive. Spending too much time saving for solar panels could actually cost you more in the long run, experts say. So which is the better move in this high-interest rate environment? A solar loan or waiting and saving in a high-yield savings account?

Solar panel purchase: Wait and save vs. finance now 

This is a central question to answer, and it comes down to your specific goals and limitations. There's a booming industry champing at the bit to slap solar panels on your property. Supporting it is a broad market of financing products, solar leases, power purchase agreements and even ways to go solar that don't require actually installing anything, like community solar for example. 

If you look long enough, you can probably find a way to go solar within the next few months without having to put down any money upfront. This is likely to reduce your long-term savings because you'll be devoting a chunk to finance charges and interest, and maximizing savings is a significant motivator for many people in considering solar in the first place. 

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But the amount you save in financing charges and interest accrued by waiting and using something like a sinking fund to amass the needed funds must be weighed against the opportunity cost of continuing to pay higher utility bills while you're saving up.

As Garrett Mendelsohn, CEO of Solar Bootcamp, a consultancy that trains people to sell solar panels, put it: Imagine it takes someone five or 10 years to save up the funds for a solar installation, "but then the entire time they're paying an electric bill anyway, and that's going to be anywhere from $5,000 to $20,000 that they just spent while saving for solar, but it could have gone into the solar and paying something off instead."

Considering Solar Panels?

Our email course will walk you through how to go solar

 

In other words, you could spend years saving for the full amount and potentially missing out on current financial incentives, rebates and tax credits. Or you could save up a little for a down payment and then put your energy savings toward paying down a solar loan. 

What you really don't want to miss out on is the federal solar tax credit through the Inflation Reduction Act. You'll get 30% or more of the cost of your solar system back in the form of tax credits and other incentives. This doesn't come as a check, but rather reduces your tax liability. Note, however, that percentage will start to diminish in 2033, unless Congress extends it. Consult a tax professional for a full understanding of how IRA incentives could benefit you. 

Why waiting to save up may not be a good idea

If you're ready to make the leap into solar and in a location where you're eligible to receive favorable net metering rates from your utility and/or substantial incentives on top of the federal tax credit, waiting may not be the best choice.

"It can make sense financing it," Mendelsohn explained, adding that savings from a solar system over time could justify taking on the debt. "It's just like going from renting to owning; it's paying itself off and you're not changing your expenses."

But again, it comes down to your individual situation. Maybe you aren't ready for the commitment of a system meant to last for decades. Or maybe your credit score makes it difficult to get favorable financing. Or maybe you live in a place with net metering rules that reduce the amount you can save with solar. 

A solar system is a big purchase and the calculus that goes into determining its overall value can be complex. A reputable solar installer can help walk you through potential saving and financing options. Be sure to spend plenty of time on your research in advance and compare multiple quotes and you'll have a better chance of coming out ahead in the long run. 

The best way to save up money for solar panels

If you do decide to save up for the full or partial cost of a solar system, or anything for that matter, now is a good time in history to get started, thanks to some favorable interest rates for savings accounts. Hopefully they'll be able to keep pace with inflation. With that in mind, US Treasury I-bonds are a good candidate for saving, with rates that are tied to inflation. The catch is you'll want to leave them invested for at least five years to avoid early withdrawal penalties. 

You may be able to earn better rates of return by investing in stocks or index funds, but keep in mind that these options come with the risk of losing value at the time you need to withdraw the funds. Better, less complicated options include simple high-yield savings accounts that offer decent rates right now. Other instruments like certificates of deposit might offer slightly more favorable rates if you're willing to lock the funds up for a period of time. 

Whatever method you choose, consider setting up regular deposits that go toward your chosen method of savings to help you reach your goal without having to think about it much. 

How much do solar panels cost?

Solar energy systems vary widely depending on what your goals are for the installation and how much energy you're looking to generate from the sun. There's a number of considerations, including whether or not you want to be fully off-grid, tie in to the grid, store energy in your own batteries or charge your electric vehicle, just for starters. 

Once you decide what you're hoping to accomplish with your system, the next thing to determine is the ideal size of the system, including how many solar panels, inverters, charge controllers, batteries and EV chargers you'll need. There's plenty of nuance to this process; you can find more guidance in sizing your solar system here.

When it comes to figuring out how much your system will cost, there's more research to do that can start with our solar cost guide here. Solar installation pricing varies from market to market, and quite a bit from home to home, depending on the specific situation. 

The average cost of a new system nationwide ranges from $2.99 per watt, according to consulting firm Wood Mackenzie, to $3.67 per watt, according to separate research from Lawrence Berkeley National Laboratory. That gives the average system of between 5 and 9 kilowatts a price tag somewhere between roughly $15,000 and $30,000. 

It is possible to reduce this price tag substantially by doing the installation yourself, but there are several things to consider before going the DIY route that will probably send most homeowners back to professional installers. 

How much do solar panels cost in my state?

Here's the average total cash price, cost per watt and system size for a solar panel system in your state, according to data from FindEnergy.com. These prices don't factor in tax credits or state incentives. Certain states don't have any FindEnergy solar data and are grayed out on the map.

What steps should you take before going solar?

Homeowners get excited about the prospect of putting shiny solar panels on their roof, saving on energy bills and helping the environment all at once. But the somewhat boring reality is that you could reap the same benefits with less expense and hassle by simply making energy efficiency improvements to your home. 

Such upgrades could reduce your energy needs, thereby shrinking the size of the solar system that's right for your home and leaving you with less to save up for. Some solar companies, like Elevation, package efficiency upgrades together with their solar installations to maximize savings. 

Another thing to check before going too far down the solar road is the state of your roof. If yours is coming towards the end of its lifespan, consider replacing it before mounting solar panels on top of it that are designed to stay there for a quarter-century or longer. 

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