The financing decision affects your return more than the equipment decision. Two households can install identical systems on identical roofs and end up with returns that differ by a factor of three, purely because of how they paid.
#Cash purchase
You pay the full cost upfront, claim the 30% federal credit, own the system and keep every dollar of savings.
Typical outcome: payback in seven to twelve years, internal rate of return of 10% to 14%, and that return is effectively tax-free because you are avoiding a bill rather than earning taxable income.
For a household in a 28% marginal bracket, a 12% tax-free return is equivalent to roughly 17% pre-tax. That comparison is worth making before assuming the cash is better deployed elsewhere.
Requires: available capital and enough tax liability to use the credit. The credit is non-refundable, though unused amounts carry forward.
#Solar loan
You borrow the full cost, claim the credit yourself, and own the system. Payments typically start below your previous electricity bill, so cash flow is positive from month one.
The trap: dealer fees. A loan advertised at 0.99% or 2.99% almost always carries a price uplift of 15% to 25% on the system, which funds the rate buydown. The lender is paid; you pay it through a higher contract price.
Ask every installer for a cash price and a financed price. If they differ by $4,500 on a $22,000 system, the "0.99%" loan has an effective cost far above the headline.
A genuine solar loan at 6% to 8% with no dealer fee is usually the better structure, even though the rate looks worse. Compare on total cost, not on rate.
Typical outcome: internal rate of return of 6% to 10% depending on the rate and dealer fee. Meaningfully below cash, but positive and requiring no capital.
#Lease
A third party owns the system on your roof. You pay a fixed monthly rent, often with an annual escalator of 1.9% to 2.9%.
They claim the 30% federal credit, not you. That is roughly a third of the system value routed away from the homeowner, which is the fundamental reason leases underperform.
Savings typically run 10% to 25% of your electricity bill, against 70% to 100% for an owned system. And the escalator means your payment rises annually whether or not electricity prices do.
Typical outcome: a modest monthly saving with no capital required and no maintenance responsibility, but a small fraction of the value an owned system produces.
#Power purchase agreement
Similar to a lease, except you pay per kilowatt-hour generated rather than a fixed monthly rent, usually at a rate below your utility's, with an annual escalator.
Same fundamental structure: the third party takes the credit and most of the value. Slightly better aligned than a lease because you pay for what is produced, so a bad production year costs you less.
#The home sale problem
This is the practical issue that most affects leases and PPAs, and it is underweighted at signing.
An owned system is an asset. Appraisers can add value for it and it generally does not complicate a sale.
A leased system means the buyer must qualify for and assume the contract, or you must buy it out. Buyers frequently refuse, and the buyout figure in years five to ten is often far above the system's market value. Real estate agents in high-solar markets consistently report leased systems as a friction point, occasionally a deal-breaker.
With twenty-year contracts and median homeowner tenure well under that, this is a likely scenario rather than an edge case.
#The ranking
- Cash — best return, requires capital and tax liability
- Loan with no dealer fee — nearly as good, no capital required, watch the total price
- Loan with a large dealer fee — acceptable but you are paying for the low rate
- PPA — modest savings, no capital, complicates a sale
- Lease — modest savings, fixed escalator, complicates a sale
#When a lease or PPA is defensible
If you have no capital, cannot access a reasonable loan, and have insufficient tax liability to use the federal credit, a lease converts an impossible project into a small monthly saving. That is a real benefit and better than nothing.
For everyone else, run the numbers. Enter the cash price into the solar savings calculator, note the payback and IRR, then compare that against the lifetime savings a lease offers. The gap is normally large enough to settle the question.
Frequently asked questions
Is it better to buy or lease solar panels?
Buying, in almost every case. Ownership captures the 30% federal credit and all of the electricity savings, and it adds resale value. Leasing routes the credit to the installer and typically delivers a small fraction of the value.
Why do solar loans have such low advertised rates?
The rate is bought down using a dealer fee added to the system price, typically 15% to 25%. You pay it through a higher contract price rather than through interest. Always request both a cash price and a financed price.
Can I sell my house with leased solar panels?
Yes, but the buyer must qualify for and assume the lease, or you must buy out the contract. Both add friction, and buyout figures are frequently well above the system's market value. This is the main practical drawback of leasing.