Should You Buy a Solar Panel System Now or Later?

Any solar salesman will tell you that its better to switch to solar now, and not wait until later. However, you may be wondering if there are any hidden loopholes that will cost you more money, if you rush into a purchase right away. If you cannot afford to shell out thousands of dollars upfront for a PV system, but are still interested in buying solar, you may be asking yourself whether or not you should get a solar loan now or wait until you have the money for the purchase at a later date. The obvious choice would be the one that will save you more money, but which choice is that?

Lets look at the math and the details, and figure out what really is the best option. To be clear, for the purpose of this example we will not talk about solar leases or PPAs (Power Purchase Agreement). These options still save you money on your electric bill, but will not save you as much as owning your own solar equipment in the long run.

Lets begin with the full cost of the solar panels. The average price per watt for solar panels in 2017 is between $2.87 and $3.85/watt, so a 5kW system would cost around $11,760, after tax credits. To make the math simpler, lets round up and say $12,000 is your final out of pocket cost.

Next, lets look at another important factor - the electricity bill. Electricity bills can range anywhere from $50 to $1000, depending on your location and property size. For our example, lets take the U.S, national average residential bill of $125 per month.

Now lets take a look at your first option.

1. Start a savings plan so that you can buy the solar panels at a later date.

Your goal is $12,000. You can be aggressive and save $1000 every month, or go at it slowly and save as little as $62.50 per month.

Here is a chart to show you how long it will take to save up the money according to the amount you put aside monthly:

Here is another chart showing your accumulated electricity costs, assuming your monthly electric bill is $125. However, we also need to take into account the electric bill over the years. Without solar panels you will be paying the full amount the energy you use. 16 years of electric bills will add up to $24,000.

So, the faster you save money, the more you will save on that $24,000 electric bill. If it takes you 16 years to save up the money for a solar panel system, you will save $0 on your electric bill during that time.

Now, lets take a look at the second option.

2. Buy solar panels today, and take out a loan for $12,000.

A few things to consider is the interest rate and the loan term. The smaller the rate and the shorter the term, the more money you will save. Here is a graph showing your total cost depending on the number of years it takes to pay off your loan, with a 5% or 10% interest rate. Keep in mind that a interest rate around 5% is hard to get; It is more realistic to get a 10% rate.

Also bear in mind that your electricity bill will no longer be $125 per month if you buy solar panels now. It will go down at least 50% and most likely a lot more than that. For our example, lets say you will still pay about 50% which will be $62.50 per month.

Now lets compare the 2 options: buy later with cash or buy now with a loan. Based on the numbers below, you can see that in almost every scenario, getting a loan now will save you more money than waiting until you can afford to buy your solar equipment with cash.

Some people love charts, some love graphs. If you need to see this information in graph form, here it is.

And now, let’s come back to our question, buy solar now with a loan or buy later with cash? The correct answer is to buy now - and this is not coming from a solar sales agent. Based on the numbers, getting a loan and switching to solar is much better than saving up money for a full cash payment later. This is assuming that the solar PV system you install with a loan only saves you 50% on your electric bills. In reality, with solar panels you can pay next to nothing for electricity and even get some money back from the electric company if you produce more than you use. But don’t take my word for it, look at the numbers or check the math yourself.