Leasing vs. Buying Solar Panels: Major Differences & Pros and Cons
Leasing vs. Buying Solar Panels: Major Differences & Pros and Cons
$50 – $250 monthly cost to lease (10- to 25-year term)
$12,600 – $31,500 average cost to buy (after 30% federal tax credit)
Leasing vs. buying solar panels
Leasing solar panels costs $50 to $250 per month on average, with most contracts lasting 10 to 25 years and monthly payment amounts increasing yearly. In comparison, buying solar panels costs $12,600 to $31,500 but offers the most benefits and the highest lifetime savings.
Financing the solar system comes with monthly payments but provides greater long-term savings than leasing and you own the panels once you've paid off the loan.
| Factor | Leasing solar panels | Buying solar panels |
|---|---|---|
| Average cost | $50 – $250 per month | $12,600 – $31,500 total* |
| Key differences |
|
|
*After 30% federal tax credit
Solar panel costs have decreased significantly in recent years, but the investment is still high for many homeowners. Leasing solar panels offers a way for more people to shift to renewable energy but comes with drawbacks. This guide covers the details, pros, and cons of both options to help you make an informed decision.
Key facts about leasing solar panels
The option to lease solar panels allows homeowners to go solar without a big initial investment, removing the main barrier to entry into the world of clean, renewable energy. Leasing solar panels also means the company, not the homeowner, handles all the maintenance and repairs for the life of the lease.
However, leasing solar panels instead of buying them means you don't own the equipment and do not qualify for any tax credits, incentives, or net metering. With a solar lease, you're committing to a decade or more of monthly payments that increase each year and leave you with no benefit once the lease ends.
Key facts about buying solar panels
Buying solar panels requires a large upfront investment but allows you to take advantage of the many available tax credits and incentives that help to reduce the cost. Most solar panel installations also increase your property value.
Owning the panels also makes you eligible for your utility company's net metering program, allowing you to earn money by selling excess solar energy back to the grid.
Many solar companies offer competitive financing options, sometimes with no down payment, so your initial investment may be lower if you have decent credit and shop around.
Pros and cons of leasing solar panels
While leasing solar panels does not offer as much cost savings as buying them, it still offers several benefits. Since most solar leases do not require a down payment, leasing may be the best choice for those on a tight budget who do not qualify for other financing.
| Pros | Cons |
|---|---|
|
|
If you sell your house in the middle of your lease contract, you may be able to transfer the lease to the buyer, provided they are willing to take it over. However, some leasing contracts include penalties or extra fees to buy out, transfer, or end the contract early.
Solar lease vs. PPA
Depending on where you live, you may have more than one option to get the benefits of solar power without buying the panels. Solar leases and Power Purchase Agreements (PPAs) are similar in that you are "renting" and do not qualify for tax credits or incentives, but there are some key differences.
Solar lease – With a solar lease, you pay a fixed monthly fee. The amount of solar power you use each month does not affect the monthly payment. Most solar lease contracts have a planned annual increase—also called an escalator clause—so your savings dwindle over time as the monthly payment increases.
Power Purchase Agreement (PPA) – With a PPA, a third-party developer installs the panels at little to no cost. You then pay only for the solar power you use, at a rate typically lower than the local electricity rate. Many PPA contracts also have escalator clauses with planned annual rate increases.
Not all states allow solar leases and PPAs. Additionally, some states allow them but have legal barriers that make PPAs difficult to obtain. Check the Database of State Incentives for Renewables & Efficiency (DSIRE) to see which programs are available in your area.
Pros and cons of buying solar panels
Solar panels cost $12,600 to $31,500 installed on average. While this is a hefty upfront investment, it provides the most long-term savings. If you qualify for a solar loan, paying for the system over time costs more than purchasing it outright but still offers significant benefits and long-term savings.
| Pros | Cons |
|---|---|
|
|
Payment options
Paying the total cost of your solar panel installation up front yields the best savings. Still, other options exist that allow you to pay for the system over time through bank or solar company financing. Some financing options require a down payment, while others do not.
Cash – Paying in full up front means you own your solar system outright from day one and can start reaping the renewable energy benefits immediately. With no added interest and many solar incentives to help reduce the cost, this option is the most lucrative if it fits your budget.
Solar loan – Solar loans typically have fixed monthly payments with competitive interest rates and no down payments. Your total cost depends on the interest rate and the length of the loan, which may be 5 to 20+ years. In general, the longer it takes to pay off, the higher the total cost.
Home equity loan – A home equity line of credit (HELOC) allows you to buy the solar panels with a lower-interest loan using the equity as collateral. The downside of this is that defaulting on the loan could result in foreclosure.
Combo loan – A combo loan consists of a primary loan for the system's net cost and a short-term "bridge" loan for the 30% tax credit value. This decreases your initial loan, lowering your monthly payments, but is only ideal if you can claim the full tax credit and use it to pay off the bridge loan.
Re-amortizing loan – A re-amortizing loan allows you to delay making a down payment until you receive the federal tax credit. This loan type has higher monthly payments initially but is recalculated after the lump sum payment from the tax credit, reducing the remaining payments.
Speak with a licensed tax advisor to determine the best way to pay for your solar panels based on your financial situation.
Is it better to lease or buy solar panels?
In most cases, buying solar panels is the better choice as it provides greater long-term savings. Leasing panels allows you to save on utility bills and help the environment, but it's a significant financial commitment offering drastically lower savings. However, the decision ultimately depends on your budget and goals.
When to lease solar panels
Consider leasing solar panels only if your electricity rates are high, you don't have the capital to buy solar panels outright, and you don't qualify for a solar loan. You'll reduce your utility bills and your carbon footprint. And, as a bonus, you aren't responsible for any maintenance or repairs.
When to buy solar panels
Consider buying solar panels if you can pay for the system up front or qualify for a loan to pay for it over time. You'll increase your home value, reduce your electric bills, and with a 6- to 10-year average payback period, you'll enjoy free electricity for 15+ years.
You can only participate in your utility company's net metering program—which allows you to profit by selling excess solar power back to the grid—if you own the solar panels.
Getting estimates from solar panel contractors
Follow these guidelines when choosing a solar contractor near you:
Hire a contractor accredited by the North American Board of Certified Energy Practitioners (NABCEP) and associated with other relevant professional organizations, such as:
Check out their profile and reviews on HomeGuide and Google.
Ask for a list of local references you can contact.
Schedule a consultation and site evaluation with at least 3 solar companies who have been in business for several years. Ask for detailed estimates to compare.
Choose a solar company that is licensed, bonded, and insured.
Ask for a contract and warranty in hand before the installation begins.
Beware of extremely low bids, as this often indicates low quality or lack of experience. Solar panels should last 2+ decades, so proper installation is essential.
Questions to ask a solar panel installer
Ask the following questions to help you pick the best company for your solar panel installation:
How long have you been in business in this area?
Are you NABCEP accredited? Are you a member of any other solar organizations?
Is my house a good candidate for a solar panel system?
What type of solar panels do you recommend for my house, and why?
How many solar panels do I need to eliminate my electricity bill?
How do you calculate what size solar system I need?
Do I need to replace my roof before installing solar panels?
Is my current electrical panel sufficient to handle a new solar panel system?
Will there be room to add more panels later if my energy needs increase?
Does the estimate include all necessary parts, installation, permit and interconnection fees, and cleanup?
What extra features are available, and how much do they cost?
Do you offer an ongoing maintenance plan?
How soon can you install my solar panel system?
How long will the installation take?
Will installing solar panels void the warranty on my roof?
Does this system qualify for any rebates or incentives, and will you help me obtain them?
How long is the warranty, and what exactly does it cover?
What happens if you go out of business before my warranty period ends?
Using our proprietary cost database, in-depth research, and collaboration with industry experts, we deliver accurate, up-to-date pricing and insights you can trust, every time.