Should you lease or buy solar panels?

Buying solar panels requires an investment and more decision-making than leasing, but over the long term, the benefits of owning your system are hard to beat. Consumer Reports offers this overview:

Best Ways to Pay For Your Panels

Cash. Buying your solar electric system outright is best. It usually costs $15,000 to $20,000 after tax credits, and it can reduce your electricity bill by 70 to 100 percent, depending on the size and orientation of your roof and local regulations. Most systems pay for themselves in five to seven years.

Home equity loan. If you need to finance your solar panel purchase, the most cost-effective way to do it is to use a home equity loan or a home equity line of credit. Because your house serves as collateral, these options have low interest rates (currently about 3 to 5 percent). The interest you pay is tax-deductible.

Solar loan. There are unsecured and secured solar loans. With an unsecured loan, your house doesn’t act as collateral and the interest isn’t tax-deductible. Many solar installers work with lenders that offer solar loans, but you’ll probably find better rates by directly checking with banks and credit unions. Consumer Reports says to watch out for high origination fees. Fannie Mae also offers consumers financing for solar system installations through its HomeStyle Energy Mortgage Program when they buy a new house or refinance.

Why Leasing Is Not a Bright Idea

The steep up-front costs for a residential solar system can make a leasing company’s sales pitch sound pretty appealing: Pay little or nothing and save hundreds of dollars per year on average. (The premise is that you save because the combination of your lease payment and your electric bill is less than what you currently pay for power.) Leasing can also look seductively simple compared with buying: There’s no need to shop separately for an installer and financing; you just sign on the dotted line. But the reality is not quite so sunny.

Your savings will be modest. People who lease their solar systems save far less than those who buy them outright or with a loan (they also miss out on federal tax benefits and any local incentives). Many leases contain an escalator clause that can further reduce savings by increasing payments 3 percent per year. So if you’re paying 12 cents per kilowatt-hour in year one, with a 3 percent escalator, you’ll be paying 18.2 cents in year 15. That means that if the cost of energy doesn’t rise as quickly as the contracted lease payments increase, your savings could evaporate.

You lose control of your roof. Leasing companies want to maximize their profit, so Consumer Reports warns that there’s a chance you could wind up with more panels than you want and that they could be installed in highly visible places without any regard to appearance – such as facing the street.

Leases can scare off homebuyers. If you put your house on the market before the lease is up (usually 20 years), you will either have to buy out the lease or the person purchasing your home will have to assume it – which some are reluctant to do.

Service plans don’t serve you. Though leasing companies tout their service plans, maintenance is a red herring. Equipment problems aren’t covered by the maintenance plan, they’re covered by the warranty. And if a storm destroys your panels, the damage may be covered by your homeowners insurance. That’s why – whether you buy or lease – it’s essential that you inform your insurer.

To learn more, visit ConsumerReports.org.

2016, Consumers Union Inc.