Picture two neighbors. Same street, same roof pitch, same 8 kW system bolted on last spring. One will pay $21,000 total. The other will pay $64,800. Same hardware. Same installer. The only difference is how they signed the financing paperwork. That gap — more than $30,000 — is where the real money in solar disappears, and it happens before a single panel touches the roof.

There are exactly three ways to pay: cash, a solar loan, or a lease/PPA. Each carries a different total cost of ownership, a different risk profile, and a different set of traps that sales reps are trained to sprint past.

Cash purchase: the lowest total cost, the fewest complications

Cash is the blunt instrument. You buy the system outright, own it from day one, and claim the 30% federal Investment Tax Credit (ITC) yourself. On a $30,000 system, the ITC returns $9,000 as a dollar-for-dollar reduction of your federal tax liability. Net cost: $21,000. No interest. No escalators. No hidden fees. Full stop.

Payback math: A $21,000 net cost with annual electricity savings of $2,400-$3,200 (depending on your utility rate and system production) puts your payback period at 6-9 years. After payback, every kWh your system produces is effectively free electricity for the remaining 16-19 years of the panel warranty.

The catch is obvious: you need $30,000 upfront and enough federal tax liability to absorb the $9,000 credit. If your federal income tax bill is only $5,000 in the installation year, you claim $5,000 that year and carry the remaining $4,000 forward. Your money stays tied up longer, but it all comes back. No lender gets a cut. No escalator clause waits in the fine print to eat your savings in year 14.

Solar loans: the dealer fee is the trap

Most homeowners do not have $30,000 lying around, which makes solar loans the most common financing method — and the one hiding the most aggressively buried cost in the industry: the dealer fee.

The mechanics are worth understanding slowly. Your installer partners with a solar lending company (Mosaic, GoodLeap, Sunlight Financial, etc.). The lender advertises an eye-catching APR — often 1.49% to 5.99%. To make up for that artificially low rate, the lender charges the installer a dealer fee of 15-30% of the system cost. The installer does not eat that fee. They pass it directly to you by inflating the loan principal.

Red flag: A $30,000 system financed through the installer's lending partner with a 25% dealer fee becomes a $37,500 loan principal. You are borrowing $37,500 to pay for $30,000 worth of hardware. The $7,500 fee is buried in the loan amount and never appears as a separate line item on many proposals.

Now watch the compounding do its work. At 5.99% APR over 25 years, that $37,500 principal balloons into total payments of approximately $64,800. You paid $34,800 in combined interest and dealer fees — more than the hardware itself cost.

The alternative is almost embarrassingly simple. Take the same $30,000 system to a credit union. Personal loan, 7.5% APR, 12-year term, no dealer fee. The principal stays at $30,000 — no inflation. Total payments over 12 years: approximately $43,560. You pay $13,560 in interest and you are done in 12 years instead of 25.

Side-by-side comparison: Dealer-fee loan: $37,500 principal, 5.99% APR, 25 years = $64,800 total. Credit union loan: $30,000 principal, 7.5% APR, 12 years = $43,560 total. The credit union loan saves you $21,240 despite the higher interest rate because there is no dealer fee and the term is shorter.

And yet the dealer-fee loan keeps selling. Why? Because the pitch never mentions total cost. It shows you a monthly payment of $180-$220, holds it next to your electric bill, and says "same thing." What it does not show: you will make that payment for 25 years, you will still carry a small residual electric bill, and the total cost of ownership quietly more than doubles the cash price.

Lease and PPA: you rent the panels, the company keeps the tax credit

A solar lease or Power Purchase Agreement (PPA) flips the ownership model entirely. A third-party company owns the system on your roof. You pay them — either a fixed monthly lease payment or a per-kWh rate for the electricity the panels produce. You do not own anything. You do not get the 30% ITC. The leasing company pockets it.

Starting PPA rates typically range from $0.10 to $0.15 per kWh, which may sit comfortably below your current utility rate. That is the pitch, and on day one it works. But virtually every lease and PPA contract embeds an annual escalator of 1-3%. Over 25 years, that escalator rewrites the economics entirely.

Red flag: At a 2.9% annual escalator, a starting PPA rate of $0.12/kWh becomes $0.25/kWh by year 25. If your utility rate grows slower than the escalator (and many regulated utilities average 2-3% annual increases), you will eventually pay more for solar electricity than you would have paid the utility. The crossover point often hits between years 12 and 18.

Then there is the buyout trap. Lease contracts include a buyout option, but the price is typically pegged to "fair market value" as determined by the leasing company — not the depreciated value of aging equipment on your roof. A system with a $30,000 original cost may carry a buyout price of $12,000-$18,000 at year 10, even though the used equipment is worth closer to $5,000-$8,000. You are paying a premium to buy something you have already been paying to use.

Selling your home adds another layer of friction. The lease transfers to the buyer — if they agree to it. Many buyers do not want to inherit a solar lease, and real estate agents consistently report that leased systems complicate closings. The buyer must qualify with the leasing company, and if they refuse the transfer, you may be stuck prepaying the remaining lease term or buying out the system just to close the sale.

When a lease or PPA actually makes sense

Legitimate lease scenarios: A lease or PPA is a reasonable choice when you cannot use the ITC (your federal tax liability is too low), you do not have cash or access to affordable credit, your utility rate is high ($0.25+/kWh), and the PPA starting rate is significantly lower ($0.12-$0.15/kWh) with a modest escalator (1.5% or less). In this narrow scenario, the PPA delivers real savings even without ownership benefits.

The 3 questions to ask any solar financing rep

  • "What is the total amount I will pay over the full loan term, including all fees and interest?" Not the monthly payment. Not the net cost after ITC. The total dollar amount that leaves your bank account from the first payment to the last. If the rep cannot answer this immediately, the financing is not transparent.
  • "Is there a dealer fee or origination fee built into the loan principal, and if so, what percentage?" If the answer is "no fee" but the loan amount is higher than the cash price of the system, there is a fee. Ask for the cash price and compare it to the financed amount. The math does not lie.
  • "Can I take this proposal to my own bank or credit union for financing instead?" Any reputable installer will say yes without flinching. If the installer pressures you into their lending partner or offers a discount only available through their financing, the dealer fee is subsidizing that discount — and you are paying for it over 25 years.
Quick financing comparison framework: For any system, get the cash price. Then calculate: (1) Cash price minus 30% ITC = your true net cost. (2) Total loan payments over the full term (principal + all interest + all fees). (3) Lease/PPA total payments over 25 years including escalators. The gap between option 1 and options 2 or 3 is the cost of financing. If that gap exceeds $15,000, shop for better financing terms before signing.

The financing decision is not a footnote at the bottom of a solar proposal. It is the decision — the one that determines whether you are making a strong investment or locking in a 25-year expense that barely outperforms your utility bill.

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