Solar Financing Payment Calculator: Loan vs Lease vs Prepaid Lease

For most homeowners who qualify for credit, a solar loan is the lower-cost path over the life of the system, and the homeowner owns the equipment from day one. A lease usually has the lower payment in year one, which is why it wins many first conversations, but most leases carry an annual escalator that raises the payment every year for 25 years. In this calculator's default case, a 2.99% escalator pushes the lease payment past a fixed 7.25% loan payment in year 8. The lease still makes sense for homeowners who cannot use a loan or who want the provider to carry maintenance and performance risk.

An escalator is the fixed percentage by which a solar lease or PPA payment rises every year. Escalators on residential leases typically run from 0.99% to 2.99%, with some providers offering a 0% option at a higher starting payment. Because the lease provider needs to recover the same system cost either way, a higher escalator buys a lower first-year payment and pushes more of the cost into later years. At 2.99%, a $152 payment in year 1 becomes $308 by year 25, roughly double.

The Section 25D residential clean energy credit, the 30% federal tax credit homeowners claimed on a purchased solar system, expired for systems placed in service after December 31, 2025. It no longer reduces the cost of a cash or loan purchase. The commercial credit under Section 48E still exists, and third-party owners such as lease and PPA providers can claim it, including a 10% bonus for domestic content. That is why leases are priced on a system that qualifies for a 40% credit while a loan customer gets none.

TPO means the solar system on the home is owned by a third party, typically a lease or power purchase agreement (PPA) provider, rather than the homeowner. The homeowner pays a monthly lease payment or a per-kilowatt-hour rate for the electricity, and the provider claims the federal tax credit, handles maintenance, and keeps ownership through the term. A solar loan is the opposite: the homeowner owns the system and the lender holds a loan against it.

Because the lease provider has to use equipment that qualifies for its tax credit. That means modules, inverters and other components that meet FEOC (foreign entity of concern) sourcing rules and domestic content thresholds, plus the provider's own documentation requirements. When Bodhi compared actual equipment quotes with a leading national distributor, a TPO-compliant bill of materials cost 30% to 61% more than what the same installer could buy for a cash or loan project. This calculator defaults to $3.50 per watt for the leased system against $2.50 per watt for the purchased one.

FEOC stands for foreign entity of concern. Under current federal tax rules, a solar system claiming the Section 48E credit cannot include components sourced from a FEOC above certain thresholds, which in practice rules out much of the lowest-cost equipment. Lease and PPA providers depend on the 48E credit to price their products, so they require FEOC-compliant, domestic-content equipment. A homeowner buying with cash or a loan is not claiming 48E and can use any equipment the installer offers.

A prepaid solar lease is a third-party-owned agreement where the homeowner pays for 25 years of system output up front instead of monthly. The provider still owns the system and claims the tax credit, and passes part of that credit back as a discount, commonly 20% to 30% off the system price. Most homeowners finance the prepaid amount with a loan. This calculator models a typical 20-year credit union solar loan at 8.99% with a $295 fee and no dealer fee. After year 6, the homeowner can usually buy the system at fair market value.

Most solar leases allow a buyout, and prepaid leases typically allow one starting in year 6, after the provider's five-year tax credit recapture window closes. The price has to be the system's fair market value, determined by the provider in good faith at the time of the buyout. Federal tax rules do not allow a buyout price to be fixed in the contract up front; a preset or nominal price can cause the IRS to treat the lease as a disguised sale and void the tax credit. So no rep can honestly promise what the year-6 buyout will cost. This calculator treats the buyout as a what-if only.

A dealer fee is a charge the lender collects from the installer, usually 10% to 30% of the system price, in exchange for offering a low headline interest rate. Installers generally add the fee to the customer's price, so a loan advertised at 3.99% can carry a system price 20% higher than the same system sold for cash. A no-dealer-fee loan, such as the Climate First Bank loan modeled here, carries a higher rate but lets the installer sell at the cash price. The calculator's loan has a $1,125 origination fee and no dealer fee.

A lease provider prices the monthly payment to recover its cost and earn a target return. In this calculator's model, the provider claims a 40% Section 48E credit, the 30% base credit plus the 10% domestic content bonus, and sets the payment so that the remaining 60% of the system cost earns a 10% annual yield over 25 years, with the chosen escalator applied each year. Providers usually describe the result to homeowners as a discount to their current utility bill, but the bill is a ceiling on what they can charge, not the basis for the price.

Climate First Bank's solar loan is 7.25% over 30.5 years with no dealer fee and a $1,125 origination fee financed into the balance. The homeowner makes no payments for the first 6 months, then 360 fixed monthly payments. Interest accrues only on funds once they are disbursed, which on a typical project adds about 3 months of interest before payments begin. On a $25,000 system the payment is about $181 a month. The loan is available through the OneEthos network of approved solar installers.

No. Savings against the electric bill depend on local utility rates, the roof, and how much electricity the home uses, which vary too much to put one number on a national page. This tool compares the three payments only. A proposal tool with the customer's actual usage and rate schedule is the right place to estimate savings.

Bodhi, a customer experience platform for residential solar installers, built it with OneEthos, the lender network behind the Climate First Bank solar loan. Defaults: a 10 kW system, $2.50 per watt for the purchased system, $3.50 per watt for the TPO system, a 2.99% lease escalator, a 25% prepaid discount, and a $500 year-6 buyout placeholder. Every one of those can be changed with the sliders. It is a planning model, not a financing quote.