If you’re looking to finance solar for your home, you’ve probably spent quite a bit of time sifting through various loan proposals. With many nuances, are you worried that the details of your contract may get lost in the mix? What should you ask before signing a solar loan agreement?  

Here are six questions to ask before signing a solar contract:  

1. Am I eligible for the Federal Tax Credit?

Certain homeowners who install solar panels in their primary or secondary residences may be eligible for a federal solar tax credit in the United States. Also known as the Residential Clean Energy Credit, its purpose is to incentivize residents who install solar between 2022 and 2032. It is a 30% dollar-for-dollar reduction from a homeowner’s income tax that is non-refundable. It may only reduce your tax liability to zero, not provide you with a rebate. The credit may be applied to both new and existing homes. This credit can be applied to both the cost of the solar panels and the labor costs associated with installation.  While the Residential Clean Energy Credit is not available to landlords on homes that they own as a rental property, they may be eligible for other commercial energy tax credit options and should consult with a tax professional to confirm eligibility.  

To claim the  Residential Clean Energy Credit, you must file IRS Form 5695 as part of your tax return. This form will help you calculate the credit amount and determine if you have any unused credit to carry forward. It's essential to keep all receipts and documentation related to your solar installation, as you may need to provide proof of the expenses.  

When installing solar panels in your home, it is wise to ensure you fully understand whether or not you are eligible to receive a solar federal tax credit. To do so, consult a tax professional to help maximize your savings and understand eligibility, as not everyone will qualify.    

‍2. Does my solar loan include dealer fees?

Dealer fees, which can currently increase the cost of installing solar by 20% to 40%, are additional fees consumers are forced to pay, oftentimes without being aware. Many lenders in the solar industry charge these fees to the installers, who then pass them on to the consumer.  

Typically, consumers are unaware of these fees because they are included in the ticket price of your solar loan payment, inflating the cost artificially. If you're financing your solar installation, the dealer fee will be added to the total cost of your contract, which means you'll end up paying interest on this fee over the life of your loan. This can add up to thousands of dollars over the loan term. Essentially, this means that a consumer who is purchasing a solar system by paying cash would pay 40% less than their neighbor who buys the exact same system and chooses to finance it.    

By working with a transparent solar installer about their pricing and financing options, you can avoid paying dealer fees. The best strategy is to ask whether or not dealer fees are included in your financing option. If these fees will add significantly to your price, consider working a lender who does not charge dealer fees. At Climate First Bank, we have made it our mission to provide ethical solar loans with no hidden fees. Each of our installers must undergo a strict screening process, ensuring they are reputable, vetted and charging a fair rate for the cost of solar.

‍3. What other fees am I paying when I finance my solar installation project?

When conducting a solar contract review, it is critical you make yourself aware of the various fees you may be charged. Here are some of the most common:

Origination Fees: These are fees charged by the lender for processing a new loan application. They are typically a percentage of the loan amount and can vary from lender to lender. Origination fees cover the cost of underwriting the loan and other administrative expenses.

Application Fees: Some lenders charge a fee just for applying for a loan. This fee is usually non-refundable, even if your loan application is denied. It's important to ask about application fees upfront to avoid any surprises.

Processing Fees: These fees cover the costs associated with processing the loan application, including document preparation and verification. Processing fees can also vary widely among lenders.

Closing Costs: These are fees paid at the closing of a loan transaction. They can include a variety of charges such as appraisal fees, title insurance, and recording fees.

When financing your solar installation, it is best practice to seek multiple quotes from different lenders to verify you are signing the best deal possible. Some lenders may offer lower interest rates but have higher fees, while others may have higher interest rates but lower fees. You may qualify for a flat fee with Climate First Bank, which covers origination fees, application fees, and processing fees.

‍4. Is my solar installer vetted?

Each installer that Climate First Bank chooses to partner with has undergone a rigid vetting process, ensuring they are fully licensed, insured, and registered with the appropriate authorities. The Bank has a vast network of installers nationwide, allowing consumers to work with local and reliable installers no matter where they’re based in the United States.

To conduct your own vetting, check if the installer is certified by the North American Board of Certified Energy Practitioners (NABCEP). This is a stamp of approval from the most respected international solar education community. You should also ask about their workmanship warranty to verify that it covers maintenance and repairs for at least 5 years as well as a manufacturing warranty for at least 25 years. Also, it is wise to ask if they are certified to install batteries, regardless of whether or not you are currently in need of them, as this shows they have put in the extra work to become certified. Check online reviews like Better Business Bureau (BBB), Google, Solar Reviews, or Yelp to ensure their customers are happy with their service. Lastly, you should find out which design software they use, as high-quality software like Aurora can provide accurate energy production estimates.

5. Do the terms of my solar loan include a prepayment penalty?  

Prepayment penalties are fees that lenders charge borrowers for paying off their loans earlier than the agreed-upon term. These penalties are designed to compensate lenders for the loss of interest income they would have earned if the borrower had continued making payments over the full loan term, significantly increasing the total cost of the loan. Typically, they are based either on a percentage of the remaining balance on the loan or on a fixed number of months’ interest. Climate First Bank offers solar loans with no prepayment penalties, allowing you to pay off your loan early without incurring additional fees.  

Some lenders advertise that they do not charge prepayment penalties. However, they charge dealer fees, which essentially share the same impact on the consumer. A consumer who pays off their loan early still pays this penalty as a dealer fee.  

‍6. How does the term length of my solar loan impact the amount that I pay?  

The length of your solar loan term significantly impacts the amount you pay each month. Shorter loan terms make the total cost of the loan spread over fewer months, meaning the payments are higher. However, since the amount is paid off more quickly, the consumer pays less interest overall. In contrast, longer loans are paid spread over more months, meaning each monthly payment is lower, but more interest is paid in total, so the cost is greater.  

It is important to consider your individual needs when choosing what loan term is best for you. This may depend on your current financial situation, monthly budget, financial goals, and flexibility. Some lenders, like Climate First Bank, offer loans with no prepayment penalties and no dealer fees, allowing you to pay off the loan early without additional charges. This can provide flexibility if you find yourself able to pay off your loan quicker than the agreed-upon term. By asking your lender these six questions, you can choose the best financing option for your household’s solar energy needs. Climate First Bank is committed to providing ethical solar lending with no dealer fees, no prepayment penalties, fixed rates, guaranteed warranties, and flexibility with term length. Visit us online to learn more!