Solar Loan vs Lease vs PPA

The Department of Energy describes three popular residential solar financing choices, leases, power purchase agreements, and loans, alongside a direct cash purchase. The right choice hinges on whether you want to own the system and claim its incentives. This guide compares the paths so you can match one to your goals.

Buying With Cash or a Loan

Ownership is the dividing line between these options. The Department of Energy states that, in general, a purchased solar system can be installed at a lower total cost than a system installed using a solar loan, lease, or power purchase agreement.

If you prefer to buy but want to lower up-front costs, the Department of Energy notes that solar loans can help, and that in most cases monthly loan payments are smaller than a typical energy bill. New homeowners can also add solar to a mortgage through Federal Housing Administration and Fannie Mae loan programs that fold home improvements into the purchase price.

Leases and Power Purchase Agreements

Leases and PPAs let a solar company own the system on your roof. The Department of Energy states that solar leases and PPAs allow consumers to host systems owned by solar companies and buy back the electricity they generate, often with no money down.

The difference between the two is how you pay. Under a lease you make a fixed monthly payment, while under a PPA you pay per kilowatt-hour of electricity produced at a set rate. Both lower your electricity bill without the monthly payments of a loan.

Who Claims the Tax Credit

Incentive eligibility follows ownership. The Department of Energy states that ownership provides tax credits while leasing does not, because under a lease or PPA the solar company retains ownership and the associated credit.

Federal residential solar tax credit rules changed for systems placed in service after 2025, so any credit amount you read about older installations may no longer apply. Confirm the current credit and your eligibility with IRS Form 5695 guidance and energy.gov before you factor any amount into your decision. The Department of Energy publishes a dedicated financing guide covering leases, loans, and PPAs in more detail.