Going solar is an excellent way of lowering your electric bill and reducing your impact on the environment. When looking to finance a solar installation project, you may feel overwhelmed by the number of options available. Here is your one-stop-shop of the five items to review in your solar loan contract before signing on the dotted line!
1. Dealer Fees:
A dealer fee is a fee that lenders charge solar installers to sell their loans or financing options. These fees can currently range from 20% to 40%, which inflates the cost of solar for the consumer and is hidden in the price quote that you get from the installer. Installers are not required to pass this fee on to the consumer, but they often do so rather than eating the cost themselves and reducing their profit margin. As a result, you may end up paying more for your solar system without even realizing it. Dealer fees can significantly increase the cost of your solar system and are often hidden or not disclosed by the installer or the lender. You may not even be aware of the additional cost until it's too late.
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.
The best way to avoid dealer fees is to work with a reputable solar installer who is transparent about their pricing and financing options. Ask your installer if the quote includes a dealer fee and if so, how much it is. If the fee is significant, consider working with a different installer or request that they finance with a lender that does not charge dealer fees like Climate First Bank.
We have made it our mission to provide an ethical solar loan with no hidden fees, which means ZERO dealer fees. We also have an onboarding process that all solar installers are required to go through before they are authorized to offer our best-in-the-industry solar loan program. When you work with Climate First Bank, you can be assured that there are no dealer fees and that you are working with a reputable installer who has been vetted by the bank.
2. Warranty Terms:
Before negotiating a solar loan, you must inquire about your warranty terms. To do this, we must first understand the characteristics of different warranties.
First, you must ensure the warranty covers both parts and labor. Some warranties may only cover the cost of replacement parts, leaving you to pay for labor costs. Additionally, it is best to seek warranties that offer the most extended coverage period. It may also be worth noting whether a warranty is transferable. This increases the value of your home because, were you to sell, the new homeowner would not have to purchase their own warranty. Lastly, it is critical to be aware of any exclusions or limitations. Some warranties may not cover certain types of damage or may require regular maintenance to remain valid.
With these factors in mind, consumers may make a more informed buying decision. In addition to the specifications, you must be conscious of what variety of warranties you intend to purchase. The two primary warranties to consider are workmanship warranties and product warranties.
A workmanship warranty covers the installation of the solar panels and inverters. This type of warranty ensures that the installation is done correctly and protects against any issues arising from poor workmanship. A good workmanship warranty covers maintenance and repairs for an extended period, ideally for at least 5 years. Homeowners may find themselves stuck paying for a dysfunctional system without a workmanship warranty.
On the other hand, a product warranty covers the solar panels and inverters themselves. This warranty guarantees that the products will perform as expected and protects against defects in materials and manufacturing. The duration of product warranties can vary, but high-quality solar panels often come with warranties ranging from 20 to 25 years.
3. Prepayment Penalties:
Another factor to be wary of when searching for a solar loan is prepayment penalties. Designed to benefit lenders, prepayment penalties are fees that lenders charge borrowers for paying off a loan earlier than the agreed-upon term. This way, the borrower pays extra to compensate for the interest they would have paid if they had kept the loan for the full term. These hidden fees may be a percentage of the remaining loan balance or a set amount.
These penalties have three major pitfalls: increased costs, refinancing challenges, and limited financial flexibility. If you decide to pay off the loan early, you may end up paying a penalty so high that it negates the early payoff benefit. Since it adds to the cost, refinance may also become more expensive, even if interest rates are lower. Effectively, this limits your ability to manage your finances efficiently, since prepayment penalties discourage early payoffs, leaving you stuck with debt regardless of if you come into more money.
Climate First Bank offers solar loans with no prepayment penalties, providing you with the flexibility to pay off your loan early without incurring additional fees.
Additionally, Climate First Bank offers the opportunity for the customer to apply their tax credit or any other early principal payments to the loan and re-amortize the payment over the remaining term at any time. The bank is very flexible on this matter, making it easy for customers to take advantage of a reduced payment anytime they choose to reduce their principal balance with an early paydown, from tax credit or otherwise.
4. Rate:
You may receive several different rate offers depending on who you choose to finance your solar loan with. The interest rate is the cost you pay to the lender for borrowing money, expressed as a percentage. These rates are often derived from factors such as your credit score, income, loan amount, and term length. Lower interest rates equate to lower total interest paid over time, with lower monthly payments.
On the other hand, the annual percentage rate (APR) is a broader measure of the cost of borrowing money. It includes the interest rate plus any additional costs or fees associated with the loan, such as origination fees, application fees, and processing fees. The APR is also expressed as a percentage and is usually higher than the interest rate because it encompasses these extra costs.
The amount of interest paid on a loan depends on the rate, the loan balance, and the length of time it takes to repay. By paying more towards the principal, you can reduce the overall loan balance faster, decreasing the interest accrued over time. This means you can repay the loan sooner and save money in the long run.
Climate First Bank offers fixed-rate solar loans, which offer several long-term benefits. Consistent payments provide predictability, allowing you to budget your payments and take back control effectively. This effectively opposes the concept of prepayment penalties in that consumers have the freedom to decide when they’d like to make payments without fear of raised costs.
5. Term Length:
The final factor to be mindful of when financing your solar loan payment is the length of the loan term. In general, a short term means higher payments because the total dollar amount of the loan is spread across fewer months, whereas a more extended payment would allow for each installment to be a lesser amount.
While a shorter term is not inherently worse or better than a longer term, it is essential to grasp the pros and cons of each to make the most informed decision.
Shorter-term solar loans
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Longer Loan Terms
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To choose the best option, you should evaluate your budget and financial goals. At Climate First Bank, we offer you a long-term fixed rate loan with the flexibility of no prepayment penalties, giving you the best of both worlds, a low monthly payment and the ability to pay early and save on interest. Although there is no one-size-fits-all for solar loans, a diligent solar contract review will allow you to make the best decision for you and your family. 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!
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