Solar Loan vs Lease vs PPA: Which Option Saves You Most in 2026?

If you've talked to more than one solar installer, you've probably heard three very different pitches. One says "zero down, no out-of-pocket cost." Another says "own your system and get the tax credit." A third says "just pay for the power — no panels to own." They're describing the three dominant ways to finance residential solar in the United States: a solar loan, a solar lease, and a power purchase agreement (PPA).

On the surface they can look nearly identical. Underneath, the 25-year financial outcomes can differ by $20,000 or more on the same roof. And in 2026, the math just shifted meaningfully because the federal Section 25D residential tax credit expired at the end of 2025, while Section 48E (which benefits third-party-owned systems like leases and PPAs) is still in effect.

Here's how to tell them apart and pick the one that actually saves you the most.

The 30-Second Summary

A solar loan is like any other home-improvement loan. You borrow money, buy the system, and own it outright. You collect all the energy savings and, historically, the 30% federal tax credit.

A solar lease is a fixed monthly payment to rent equipment. A third party owns the panels, claims the tax credit, and you pay them for use of the system — usually less than your old utility bill.

A power purchase agreement (PPA) is similar to a lease, but instead of renting the equipment, you pay per kilowatt-hour the system actually produces. You're buying the electricity, not the hardware.

The big trade-off is control and upside vs. simplicity. Ownership almost always wins long-term. Third-party ownership wins if you can't use a tax credit, don't want maintenance responsibility, or just want a lower bill starting day one.

How Each Option Works in 2026

Solar Loan

Most residential solar loans in 2026 run 10, 15, 20, or 25 years at interest rates between 6.99% and 9.99% APR for well-qualified borrowers, depending on term and lender. Popular lenders include Mosaic, Sunlight Financial, GoodLeap, Dividend, and an increasing number of local credit unions offering "green energy" loans.

Example: a 7 kW system in North Carolina at $3.10 per watt installed costs roughly $21,700 before any credits. A 20-year loan at 7.99% works out to about $181 per month. If the homeowner's current electric bill averages $165 per month and the system offsets 95% of usage, the loan payment roughly replaces the bill from day one — and after the loan is paid off, the electricity is effectively free for another 5-10 years of useful panel life.

The catch in 2026: Section 25D, the 30% residential clean energy tax credit that used to knock roughly $6,500 off that example, expired for systems placed in service after December 31, 2025. Owned residential solar no longer gets a federal tax credit. Some states (New York, Massachusetts, South Carolina) still offer state tax credits, and many utilities still offer rebates, but the federal piece is gone for cash buyers and loan buyers.

Solar Lease

With a lease, a third-party owner (often Sunrun, Sunnova, Palmetto, or a local installer's financing partner) installs and maintains the system. You sign a 20- or 25-year contract to make fixed monthly payments — usually with a 1.9% to 2.9% annual escalator.

A typical 2026 lease offer on that same 7 kW system might be $95 to $120 per month in year one, escalating each year. Over 25 years, total payments land around $33,000 to $40,000.

The third-party owner still qualifies for the Section 48E commercial investment tax credit (currently 30%, scheduled to step down starting 2033 under the Inflation Reduction Act structure). That's why leases remain economically viable even though homeowners lost Section 25D.

Power Purchase Agreement (PPA)

A PPA is structurally similar to a lease but priced per kilowatt-hour. You might sign at $0.12/kWh when your utility charges $0.17/kWh. You pay only for what the system produces, so underproduction (from shade, snow, or soiling) reduces your bill rather than leaving you paying for watts you didn't get.

Most PPAs include a 2.5% to 2.9% annual price escalator. If your utility raises rates faster than that, you continue to save. If utility rates flatten, your savings compress. Historically, U.S. residential utility rates have risen an average of roughly 3% per year, but that varies massively by state.

The 25-Year Math on a Typical 7 kW System

Using North Carolina as a reference (average utility rate $0.139/kWh, 4% annual rate inflation assumption, 7 kW system producing 9,800 kWh/year):

Option	Upfront Cost	25-Year Total Payments	25-Year Gross Utility Savings	Net Savings
Cash purchase	$21,700	$0 after buy-in	~$45,000	~$23,300
20-year loan @ 7.99%	$0 down	~$43,400 loan payments	~$45,000	~$1,600 during loan, free power years 21-25
25-year lease (2.9% escalator)	$0 down	~$37,000	~$45,000	~$8,000
25-year PPA at $0.12/kWh + 2.9% escalator	$0 down	~$40,000	~$45,000	~$5,000

Cash still wins in raw dollars. A loan narrowly edges leases and PPAs over the full lifetime, especially in years 21 through 25 when the loan is paid off but the panels are still producing. Leases and PPAs deliver more reliable monthly savings starting immediately — just less total upside.

These are illustrative figures. Your actual numbers depend on local rates, system performance, degradation, interest rate, and escalator. Run your own zip-code-specific estimate on the EnergyScout solar calculator.

How to Choose the Right Option for Your Situation

Pick a loan if:

You plan to stay in the home for at least 10 more years. You have decent credit (typically 680+ for best rates). You're comfortable with a new monthly payment. You value the long-term freedom of owning the system outright, including the ability to add batteries or transfer the asset at sale.

Pick a lease if:

You want predictable monthly payments. You have no federal tax liability to offset (so loss of Section 25D doesn't matter to you anyway). You don't want to handle system monitoring, insurance claims, or inverter replacements. You're okay with a third-party UCC filing on the home (it is not a real property lien, but it does appear in title searches).

Pick a PPA if:

Your roof has any production uncertainty (partial shade, odd orientation, heavy snow load). You want your cost tied directly to output. Your state has strong PPA consumer protections (California, Massachusetts, New York, New Jersey are among the best).

Avoid all three if:

You don't plan to stay in the home for at least 5 more years, or your roof needs replacement within 10 years. A re-roof under an existing solar array typically costs $2,000 to $5,000 extra to remove and reinstall panels — often more than the savings you'd capture in a short window.

Red Flags in Each Financing Contract

Regardless of which option you choose, read the contract for these:

• Escalators above 2.9%. Some older leases used 3.9% or higher. Over 25 years, that's thousands of extra dollars.
• Production guarantees. A real guarantee will specify kWh, reimbursement rate, and measurement method. A vague "we stand behind our systems" is not a guarantee.
• End-of-term options. What happens in year 26? Renewal, purchase (at fair market value or a fixed amount), or removal? Get it in writing.
• Transfer clauses. If you sell the home, can the new owner assume the lease or PPA? What fees and credit checks apply?
• Dealer fees. Loans with teaser low APRs often bake a 15% to 30% dealer fee into the system price. Ask for the cash price and the financed price side by side.

For more installer vetting, see our guide on how to vet a solar installer in 9 questions.

What Changed in 2026

The Section 25D residential clean energy tax credit (30% for panels, batteries, solar water heaters) expired for systems placed in service after December 31, 2025. Section 48E, the commercial investment tax credit that third-party owners of residential solar use to fund leases and PPAs, remains in effect with its gradual phase-down starting 2033.

Practically, this means the economics of owned residential solar took a meaningful hit — the 30% credit was often the difference between a 6-year and a 10-year payback. Loans and cash purchases still make sense in high-electricity-cost states (California, Massachusetts, Hawaii, New York) and for homeowners with strong net metering. In states with flat or low rates, leases and PPAs have become relatively more attractive because the tax credit advantage of ownership evaporated.

Next Step

Every financing option looks different once you plug in your actual roof, utility rate, and shade profile. Run a free zip-code-specific estimate with the EnergyScout solar calculator to see side-by-side monthly payments for loan, lease, and PPA at your address. You can also browse verified local incentive programs and vetted installer options from the same dashboard.

Sources

1. U.S. Department of Energy, "Homeowner's Guide to the Federal Tax Credit for Solar Photovoltaics," https://www.energy.gov/eere/solar/homeowners-guide-federal-tax-credit-solar-photovoltaics
2. NREL, "Residential Solar Photovoltaic System Cost Benchmarks," https://www.nrel.gov/solar/market-research-analysis/solar-installed-system-cost.html
3. EnergySage, "Solar Loans vs. Solar Leases vs. PPAs," https://www.energysage.com/solar/financing/solar-loans-vs-leases/
4. SEIA, "Solar Investment Tax Credit (ITC)," https://www.seia.org/initiatives/solar-investment-tax-credit-itc
5. DSIRE, Database of State Incentives for Renewables & Efficiency, https://www.dsireusa.org/
6. U.S. Energy Information Administration, "Average Price of Electricity to Ultimate Customers," https://www.eia.gov/electricity/monthly/epm_table_grapher.php?t=epmt_5_6_a