Solar energy is a fantastic way to reduce your carbon footprint and save money on electricity bills in the long run. However, the initial cost of installing a solar panel system can be quite high.
To make solar more accessible, many people opt for solar loans. But beware—hidden in the fine print of these loans are dealer fees that can significantly inflate your costs.
In this article, we'll dive into what dealer fees are, why they matter, and how you can avoid them.
Dealer fees are additional charges added to the total cost of your solar loan. These fees are often hidden and can range from 15-40% of the loan amount. Other terms for dealer fees include “loan origination costs”, “service fees”, and “fu*king stupid fees”. Well... that’s what we call it at least.
They are used to cover the administrative costs and risks associated with lending money. While some lenders are transparent about these fees, many are not, leading to confusion and, in some cases, outright deception.
1. Inflated Costs: Dealer fees add to the overall cost of your solar installation, making an already expensive investment even more costly.
2. Early Repayment Penalties: If you're planning to pay off your solar loan early, dealer fees can act as a financial penalty, making it less advantageous to clear the debt ahead of schedule.
3. Tax Credit Issues: Some people mistakenly believe that dealer fees are eligible for the Federal Investment Tax Credit (ITC), which is not the case. This misunderstanding can lead to complications when claiming tax benefits.
Before diving into how to avoid dealer fees, it's crucial to understand the different types of solar loans available. Knowing the ins and outs of these loans can help you make an informed decision.
Secured solar loans require collateral, usually your home, to secure the loan. If you fail to make payments, the lender can place a lien on your property. These loans generally offer lower interest rates but come with the risk of losing your collateral if you default on the loan.
Unsecured solar loans do not require any collateral. Because the lender is taking on more risk, these loans typically come with higher interest rates. However, you won't risk losing your property if you default on the loan.
Some solar loans are reamortized, meaning your monthly payments during the first year are higher. This structure takes into account the federal solar tax credit, which allows you to deduct a portion of the cost of installing a solar energy system from your federal taxes.
If you're wary of dealer fees associated with solar loans, there are other ways to finance your solar installation:
A HELOC allows you to borrow against the equity in your home. This option usually offers lower interest rates and the interest may be tax-deductible. However, the underwriting times for these loans can take a month or so.
Personal loans can be used for any purpose, including solar installations. They are generally unsecured and may have higher interest rates compared to other options.
If you have the means, paying for your solar installation in cash is the most straightforward way to avoid any kind of fees or interest. And if you can get solar for a good price (like with DIY Solar), the return on your investment is usually better than the stock market!
Solar leases involve monthly payments to lease the solar panels from a provider. While you won't own the panels, you can still benefit from the electricity they produce.
In a PPA, you agree to purchase the power generated by a solar system located on your property at a set price. The system is owned and maintained by a third party. This is what some people call “free solar” even though it is hardly free.
1. Read the Fine Print: Always read the terms and conditions of your solar loan carefully. Look for any hidden fees or charges.
2. Ask Questions: Don't hesitate to ask your lender about all the fees associated with the loan, including dealer fees.
3. Compare Loans: Use platforms like EnergySage to compare different solar loan options, including those without dealer fees.
4. Consider Other Financing Options: Explore other ways to finance your solar installation, such as home equity lines of credit or personal home construction loans, which may not have dealer fees.
5. Transparency: Opt for lenders who are transparent about their fees. Some companies offer prime rate products with no fees at all, allowing for a straightforward comparison between cash and financed prices.
While solar loans make solar energy more accessible, hidden dealer fees can turn your green dream into a financial nightmare. By being vigilant and doing your research, you can avoid these pitfalls and make a more informed decision about financing your solar installation.