Are there any hidden fees I should watch out for in solar loans

When considering solar loans, there are several hidden fees and potentially deceptive terms you should be aware of to avoid paying significantly more than the upfront quoted price of the solar system.

Key Hidden Fees and Issues in Solar Loans

1. Dealer Fees (Finance or Markup Fees)

• Dealer fees are a percentage added to the loan principal by lenders or solar installers, often ranging from 15% up to 40% of the project’s cost. This inflates the loan amount beyond the actual cash price of the solar installation.
• These fees reduce the stated interest rate and monthly payments, making loan offers appear more attractive initially, but ultimately increase the total amount you repay over time.
• The fees are usually hidden or not clearly disclosed, making it difficult to understand the true cost of your solar loan and system.
• Dealer fees are similar to paying points on a mortgage, but applied in a way that can be misleading about the loan’s affordability.
• Notably, dealer fees are not eligible for the federal solar tax credit, further reducing the financial benefit of your solar investment.

2. Balloon Payments

• Some solar loans keep monthly payments low early on by requiring a large lump-sum payment (balloon payment) after 12-18 months, often assuming you will use your federal tax credit to cover this amount.
• If you do not qualify for the tax credit or cannot make the balloon payment, your monthly payments can unexpectedly increase significantly. This can cause financial strain or surprise costs.

3. Misleading Presentation of Costs and Tax Credits

• Some lenders and installers promote loan amounts as “net costs” after applying the expected 30% federal Investment Tax Credit (ITC), but this tax credit is not guaranteed and may take time to be received.
• This practice can cause customers to underestimate what they will actually pay and misunderstand their financial obligation.

4. Confusing and Untransparent Loan Terms

• Hidden dealer fees and markup charges often are not separated from the principal or clearly reflected in the Annual Percentage Rate (APR), making it difficult to compare offers or understand the total cost.
• Door-to-door sales tactics and pressure can lead to signing complex loans without full awareness of fees, payment jumps, or actual costs.

How to Avoid or Mitigate These Hidden Fees

• Ask explicitly if the loan has dealer fees or finance markups, and how much they are. Request a detailed, written breakdown of all fees and loan terms before signing.
• Consider financing options through independent banks or credit unions rather than national solar installers or lenders that bundle dealer fees into loans. These often have more transparent and lower-cost financing.
• Be cautious of loans with balloon payments and ensure you have a clear plan to cover any large payments if needed.
• Shop around with multiple lenders and installers and compare their offers carefully, especially the total cost over the life of the loan, not just the monthly payment or APR.
• Verify eligibility for the federal tax credit and do not assume it when evaluating loan amounts or payments.

Summary Table of Potential Hidden Fees and Issues in Solar Loans

In conclusion, solar loans often come with hidden dealer fees and complex loan terms that can significantly increase your costs beyond what you initially expect. The dealer fees alone can add 15-40% to the loan amount, making the investment more expensive over time. Balloon payments and misleading tax credit assumptions can further complicate your financial planning. The best strategy is to carefully scrutinize all fees, opt for transparent lenders like credit unions, avoid dealer fees, and understand your eligibility for tax credits before committing to a solar loan.