How Solar Loans Work: Dealer Fees, Re-Amortization and What Changed in 2026

How solar loans work is simple on paper: a lender pays your installer, you own the system from day one, and you repay the loan in fixed monthly installments. The catch is in the details. Dealer fees, payments that assume a tax refund and long terms can make a financed system cost far more than its cash price.

That last point matters more in 2026. Many solar loans were built around the 30% federal tax credit, with a large paydown expected around month 18. For a system you own that is installed in 2026, that credit doesn't exist. This guide shows how solar loans are structured, what the fees really cost and how to pick one that still fits.

How does a solar loan work?

A solar loan is an installment loan used to buy a system you own. The amount financed, the APR and the term set your monthly payment. Because you own the panels, you keep the bill savings and any state incentives. The goal is a payment close to or below what the system saves you each month.

Here is the baseline, using the defaults in our solar loan calculator: a $23,100 cash price (7.7 kW at $3.00 per watt), nothing down, a 7.99% APR and a 20-year term. The payment is $193.07 a month. Over 20 years you would pay $46,338, of which $23,238 is interest.

Compare that with savings. The same system's first-year bill savings in our payback model are about $1,890, or $157.50 a month. So the loan costs about $36 a month more than it saves at first. Savings grow as utility rates rise and the payment stays flat, which is how many loans eventually break even.

What are dealer fees, and how much do they cost?

Dealer fees are often the biggest hidden cost in solar loans. The Consumer Financial Protection Bureau found in 2024 that they typically run 10% to 30% of the cash price and can exceed 50%, raising loan principal 30% or more above what a cash buyer would pay. A low APR can hide a high total cost.

The CFPB's Issue Spotlight on solar financing (opens in a new tab) (August 7, 2024) found that the fees were rarely disclosed clearly. Berkeley Lab's 2026 data update (opens in a new tab) shows the result in prices: a 2025 median of $4.50 per watt for loan-financed systems versus $3.00 per watt for cash purchases, with loan prices including dealer fees.

Here is how a fee changes the math on the same $23,100 system. Our calculator models the fee the way lenders usually do: the lender pays out only part of the face amount, so the amount financed is the cash price divided by one minus the fee.

The 2.99% loan with a 25% fee looks cheaper each month than a no-fee 7.99% loan, and over 25 years it is. But it costs about $11,000 more than a true 2.99% loan with no fee. The only way to see the fee is to compare the loan amount with a written cash price.

What is the month-18 paydown, and why is it a problem in 2026?

Many solar loans set the first 18 months of payments as if you will prepay about 30% of the balance, normally using the federal tax refund. If you don't make that paydown, the loan re-amortizes at a higher payment for the rest of the term. Without the tax credit for 2026 installations, there is no refund to make it.

The CFPB described this structure in its 2024 report: payments rise around month 18 or 19 unless roughly 30% of principal is prepaid. It also found that marketing often netted out the 30% credit, even for buyers who couldn't use it. That design matched the old 25D credit. As of October 2026, it no longer matches the tax law for owned systems.

The IRS treats a 25D expenditure as made when installation is completed, per its August 2025 FAQ (opens in a new tab), and the credit ended for expenditures made after December 31, 2025. So a homeowner whose system is installed in 2026 gets no federal credit to fund a paydown.

Here is what happens on a typical structure. We modeled a $23,100 system financed at 3.99% for 25 years with a 25% dealer fee, so $30,800 is financed. The intro payment is set as if 30% ($9,240) will be prepaid.

1. Months 1 to 18: the payment is $113.68, which barely reduces the balance.
2. At month 18: about $30,591 is still owed, almost the full amount.
3. With the $9,240 paydown: the payment becomes about $116.79 for the remaining term.
4. Without the paydown: the payment jumps to about $167.34, a 47% increase, for the next 23.5 years.

Which kinds of loans can you use for solar?

Most homeowners use one of four: a loan arranged by the installer, a home equity loan or line of credit, a personal loan, or a loan from a credit union or bank. Each trades off speed, cost and risk. The Treasury Department notes you don't have to use the salesperson's financing.

The Treasury Department's consumer advisory on buying and financing solar (opens in a new tab) recommends shopping with other lenders and comparing lender fees, rates and terms. It also warns that a lien on the system, often a UCC-1 filing, can affect selling your home.

How do you tell whether a solar loan is a good deal?

A good solar loan starts with a fair cash price, has no or small dealer fees, a fixed payment you can afford without counting on a refund, no prepayment penalty and a term no longer than the warranties. Compare offers on total cost and on the gap between payment and expected savings.

Use this checklist when you compare:

• Get the cash price in writing and compare it with the amount financed. The difference is the fee.
• Compare price per watt. The Treasury advisory suggests asking for the cost per watt of the installation.
• Check the APR, term and total of payments on the federal Truth in Lending disclosure.
• Ask about prepayment penalties and early termination fees.
• Match the term to the warranties. Treasury suggests checking whether you can pay off the loan while the panels are still under warranty.
• Run payback with the loan. Our solar payback calculator accepts a loan amount, APR and term.

What happens to a solar loan if you sell your home?

You usually have to pay off the loan at closing or arrange for the buyer to take it over, if the lender allows that. Liens tied to the loan can slow a sale. Plan for this before you sign, especially if you might move within the loan term.

The Treasury Department's advisory warns that liens on the solar system, often called UCC-1 filings, can affect whether a buyer wants to purchase your home, and that the lender may require repayment or the buyer may need to take on the loan. If the loan is secured by the home itself, as with a home equity loan, it is paid off from the sale proceeds like any other lien.

Ask three questions up front. Is the loan assumable by a buyer? Is there a fee or penalty to pay it off early? What filing will the lender record, and how is it released once the loan is paid? Keep the answers, the payoff instructions and your contract with your home documents so a future sale goes smoothly.

Is a solar loan better than a lease or PPA?

A loan usually beats a lease or PPA over 20 to 25 years because you own the system and keep all the savings once it is paid off. A lease or PPA needs no money and puts repairs on the company, but escalators and lower long-term savings often make it cost more over time.

In 2026, leases and PPAs have one advantage loans lost: the company that owns the system may still claim a business tax credit under section 48E, subject to deadlines and sourcing rules, and some of that value can show up in the price. You don't claim it yourself. Our guide to solar lease vs PPA vs loan compares all four options with real numbers, and the federal solar tax credit guide explains what ended.

How do you avoid solar loan traps?

Slow down, get everything in writing and compare at least two lenders against the same cash price. Most loan problems the CFPB found came from pressure sales, overstated savings and fees buried in the price. You also have cancellation rights for many sales made at your home.

The CFPB found that savings claims were often overstated and that older adults were targeted: 34% of solar mail ads went to people 60 and older. The FTC's Cooling-Off Rule (16 CFR Part 429 (opens in a new tab)) gives you until midnight of the third business day to cancel many sales made at your home for $25 or more, and the seller must give you a cancellation form.

Use the rule if you feel rushed. Then compare quotes, which our guide on how to choose a solar installer explains, and read our list of solar sales red flags before anyone comes back with a tablet to sign.