If you’re shopping around for solar panels or battery storage, you’ll probably see advertisements for solar systems at no upfront cost.
What’s being offered is a package which includes your solar system and interest-free finance. It’s a one-stop-shop solution. All you need to do is pass a credit check which generally only takes a few minutes.
What happens next?
Your solar system is installed and you pay it off over the agreed timeframe – anything from 6 months to several years. Then it’s 100% yours.
But isn’t there a catch? After all, there’s no such thing as a free lunch. And that goes for finance as much as anything else.
What you’ll learn from this blog
On this blog we explore:
- How interest-free solar works
- The real cost of interest-free solar finance
- How do interest-free finance providers get away with it?
- The “interest-free” loophole
- Other ways to finance your solar system
How interest-free solar works
Interest-free solar finance is typically offered by ‘buy now, pay later’ providers. These providers enter into an agreement with a solar retailer to provide finance to the retailer’s customers.
The solar retailer offers an interest-free solar package with a payment plan to prospective customers. When someone expresses an interest, there’s a quick approval process with a fast turnaround. Once the customer is approved, the order goes through, and the system is installed.
The customer pays off the system over the agreed timeframe. There’s usually a small monthly fee of a couple of dollars and late fees if the customer misses a payment.
This all sounds normal enough. What’s the catch?
The real cost of “interest-free” solar finance
The catch with interest-free solar finance is that adds around 15 to 20 per cent to the cash price of your system. This cost is hidden from you because the solar retailer isn’t allowed to advertise the same package (i.e., the same solar panel system or battery) without interest-free finance. But if you shop around for like-for-like quotes without finance, you’ll quickly spot the mark-up.
And if you don’t, the alarm bells should ring.
Because what this means is that the solar retailer is taking shortcuts somewhere else. They could be paying the installers less – which could lead to quality issues – or short-changing you with poor quality components such as the wiring and cabling. (And this is not what you’d want with high voltage direct current on your roof!).
How do interest-free finance providers get away with it?
Basically, it’s dodgy but not illegal. Interest-free financing for solar systems exploits a loophole in the way finance can be provided.
Here’s an example to explain.
Let’s say a solar retailer has a system worth $10,000 cash price. They want to offer it with interest-free finance, so they add the cost of the interest-free finance to the cash price.
That increases the price by 15-20 per cent – so the system cost is now $12,000 including the “interest-free” finance. And the extra $2,000 is the amount the retailer must pay the finance provider for financing the system.
Because the solar retailer isn’t allowed to advertise the same system for a cash price, everyone pays the higher price (even if they don’t want the finance) unless they shop around – or haggle with the retailer. If they haggle, the retailer is allowed to offer them a discount in return for paying cash.
And it gets worse. Here comes the loophole…
The “interest-free” loophole
Because the solar retailer is allowed to claim the interest-free finance as a cost of doing business, the finance provider isn’t subject to the same level of regulation as financial institutions like banks. They aren’t required to hold a credit license or observe the consumer protections under the National Consumer Credit Protection Act 2009.
For anyone signing up for finance, this should sound alarm bells!
Other ways to finance your solar system
The right solar panel system should save you more each month than it costs to finance it (and that includes repayments). But, of course, you don’t want to pay over the odds for the finance.
That’s why separating the finance from your solar purchase makes sense. First shop around for the best possible solar power system for your needs. Then get the best financing deal. It might take a little bit more time, but not much. And it could end up saving you thousands of dollars.
Also, using finance means you don’t have to dip into your cash reserves.
Here are some options for low-cost financing for your solar system:
- Interest-free government loan
- Low interest green loan from your bank
- Add it to your mortgage
- Low interest solar finance
1. Interest-free government loan
If you live in Victoria, you may be eligible for an interest-free government loan of up to $1,400 to help pay for your solar panel system. This loan is via the state government’s Solar Homes Program and works as an upfront deduction on the cost of the system. You pay off the loan over 48 months – or quicker if you choose. This loan is a bit of a no-brainer if you are eligible (and the eligibility criteria is very broad).
2. Low interest green loan from your bank
Most banks offer green loans at competitive interest rates to help homeowners buy a solar panel or battery storage system. Green loans are generally at a lower interest rate than personal loans and can be an attractive option for financing solar power systems.
3. Add it to your mortgage
This is one of the lowest cost forms of financing your solar system. If you have a mortgage at a commercial rate of interest, then adding a few thousand will generally not make a huge difference to your monthly repayments – and of course you can pay it off as quickly as you like.
4. Low interest solar finance
At Specialized Solar & Electrical, we’ve partnered with Atlas Investment Firm, a Melbourne-based financial specialist in renewable energy financing. The low interest solar finance through Atlas is separate from our solar systems. We don’t mix them up.
With this approach, you see exactly what you’re getting for your money for both the solar system and the finance package.
This gives you the best of both worlds – complete transparency and a great deal for both your solar and your finance.
Get in touch
If you’d like to find out about the solar panel and battery systems from Specialized Solar, get in touch.
We aim to make going solar as simple and easy as possible. Our approach is friendly and consultative.
We look forward to talking to you soon!
