Solar Loan vs Cash Calculator: Find the Hidden Dealer Fee

Quick answer: The advertised interest rate on a solar loan is not the whole cost. Lenders charge the installer a dealer fee to buy the rate down, and that fee is added to your system price. So a 2.99% loan on an inflated price often costs more than a 7% credit union loan on the real cash price. Ask for both prices in writing, then run them through the calculator below.

What this guide covers

• The calculator
• How the dealer fee works
• The two-price test
• The re-amortisation trap
• Your actual financing options
• Common mistakes
• FAQ

The calculator

Enter the cash price and the financed price for the identical system. If the installer will only give you one number, that is itself an answer.

How the dealer fee works

A lender cannot lend at 2.99% for twenty five years and make money at ordinary market rates. So it does not.

Instead the lender charges the installer a fee, often a substantial percentage of the loan amount, in exchange for offering that low rate to you. The installer does not absorb that fee. It goes into your quoted price.

The result is a genuinely low interest rate applied to an inflated principal. The rate is real. The price is not the same price you would have paid in cash.

This is legal, and the numbers are all in the paperwork. It is rarely explained, because explaining it makes the comparison obvious.

Fee sizes vary widely by lender, term and rate. The lower the advertised rate and the longer the term, the larger the fee tends to be.

The two-price test

You do not need to know the fee percentage. You only need two numbers.

Ask the installer, in writing: what is the total price for this exact system if I pay cash, and what is the total price with your promoted financing? Same panels, same inverter, same quantity.

The difference is the dealer fee you are paying. The calculator above shows it as a figure and as a percentage.

Now compare three routes with that knowledge. Paying cash at the cash price. Taking the promoted loan at the financed price. Or taking an ordinary loan from a bank or credit union, at a higher stated rate, applied to the lower cash price.

That third route wins more often than people expect, because a smaller principal at a higher rate frequently beats a larger principal at a lower one.

The re-amortisation trap

Most solar loans are written on an assumption that catches borrowers out.

The quoted monthly payment usually assumes you will receive the federal tax credit and pay it into the loan as a lump sum, typically within twelve to eighteen months. The loan is then re-amortised and the payment stays roughly level.

If you do not make that lump payment, the loan re-amortises anyway, over the remaining term, on the full balance. Your monthly payment jumps, sometimes sharply.

Two things can cause that. You spend the credit on something else, or you never receive the full credit because your tax liability was too small.

The credit reduces tax owed. If you owe less than the credit in that year, you cannot use all of it at once. Carry-forward rules may apply, but the cash does not arrive on the loan's schedule.

Ask two direct questions before signing. What is the payment if I never make the lump sum? And what happens if my tax liability is lower than the credit? Toggle the option in the calculator to see the difference.

Your actual financing options

A lease or power purchase agreement is a legitimate product for households with little tax liability, since the third-party owner claims the credit instead. Read the escalator clause and the transfer terms carefully, as covered in leasing versus buying.

Common mistakes

Comparing monthly payments. A longer term always lowers the payment and raises the total.

Assuming the credit is a rebate. It reduces tax owed. If you owe little, you receive little that year.

Not asking for the cash price. Without it you cannot see the dealer fee at all.

Signing on the salesperson's tablet. Ask for the full loan document by email and read it away from them.

Ignoring prepayment terms. Confirm there is no penalty for paying the loan down early.

Financing a system on a worn roof. You will pay to remove and refit it. See the installation process.

FAQ

What is a solar dealer fee?
A fee the lender charges the installer to fund a low advertised interest rate. It is added to the system price you finance.

Is it cheaper to pay cash for solar?
Almost always in total cost, because you avoid both interest and the dealer fee. Whether that is the best use of the capital is a separate question.

Why did my solar loan payment go up?
Most solar loans assume you pay the tax credit into the loan within about eighteen months. If you do not, the balance re-amortises and the payment rises.

What if my tax liability is smaller than the credit?
You cannot use the full credit in that year. Carry-forward rules may apply, but the money will not arrive on the loan's schedule. Ask a tax professional.

Is a credit union loan better?
Frequently, because it applies to the lower cash price. Compare total cost, not the interest rate.

Should I use home equity?
It often carries the lowest genuine rate, but it is secured against your home. Weigh that seriously.

Does the tax credit apply to the dealer fee?
The credit is generally based on the amount paid for the system. Treatment of financing charges is a question for a tax professional, not a salesperson.

Where to go next

Read solar sales red flags, solar funding options and the payback calculator to complete the financial picture.

Consumer guidance on solar financing is published by the U.S. Department of Energy and the Consumer Financial Protection Bureau.