Are there any hidden fees associated with solar financing options

There are indeed hidden fees commonly associated with solar financing options, most notably “dealer fees,” which can substantially increase the total cost of a solar loan beyond the advertised or cash price of the system.

Hidden Fees in Solar Financing

Dealer Fees

• Dealer fees are additional charges imposed by lenders on solar installers for selling their loans or financing options. These fees typically range from 10% to 40% of the solar project’s cash price and are often embedded in the loan principal without clear disclosure.
• These fees are not usually included in the stated Annual Percentage Rate (APR), making it difficult for consumers to understand the true cost of their loan. This practice can increase the loan cost by 30% or more above the cash price of the solar installation.
• Dealer fees lower the APR and monthly loan payments on paper but increase the total loan principal, resulting in higher overall interest payments and total costs over the life of the loan.
• Many lenders pass these fees on to consumers through installers, who may not transparently disclose them, leading to unexpected expenses for homeowners.

Balloon Payments

• Some solar loans require a large balloon payment after an initial low monthly payment period (often 12 to 18 months). This balloon payment is frequently sized to match the expected federal solar Investment Tax Credit (ITC) amount (around 30% of the principal).
• If the homeowner does not qualify for the tax credit or cannot make this balloon payment, monthly payments can increase substantially, causing financial strain.

Misleading Tax Credit Assumptions

• Loan principals are often presented as “net costs” assuming the borrower will receive the 30% federal tax credit. This can mislead consumers about the actual amount they owe if the tax credit eligibility is uncertain or not realized.
• Financing fees and dealer fees are generally not eligible to be deducted as part of the federal tax credit, which can reduce the effective savings from the tax credit.

Savings Claims and Loan Terms

• Some lenders and solar dealers have been found to exaggerate expected energy savings and misrepresent the loan terms, further complicating the financial picture for consumers.

Summary of Risks and Consumer Advice

• Hidden dealer fees can inflate loan amounts by tens of percentage points, making solar financing more expensive in the long run despite appearing affordable upfront due to lower monthly payments.
• Balloon payments tied to the federal tax credit assumptions can lead to sudden and significant payment increases.
• Consumers often do not receive clear, transparent breakdowns of these fees or loan conditions.
• To avoid these pitfalls, consumers should:
• Ask explicitly about dealer fees and get itemized loan cost breakdowns.
• Consider loans from reputable lenders who disclose all fees upfront or local credit unions with transparent terms.
• Verify eligibility for federal tax credits separately and do not assume it as a guaranteed offset in loan costs.
• Be cautious with offers promising very low interest rates coupled with dealer fees and balloon payments, as total costs may be higher than alternative financing.

In conclusion, solar financing often includes hidden “dealer fees” and potentially balloon payments that can significantly increase the cost of going solar. These fees are not always clearly disclosed, and careful scrutiny of loan terms and comparison with transparent lenders is essential for homeowners seeking solar financing.