Money & finance · payment-mode decision

Solar lease vs PPA vs loan vs cash.

Updated May 16, 2026. Sources verified the same day. We rerun this guide every quarter against the IRS and Berkeley Lab reference pages.

Four payment modes for residential solar. A salesperson is unlikely to present all four, because each company sells the ones that pay them. The trade-offs aren't a matter of opinion — they're a matter of who owns the system, who claims the credit, who pays for the inverter when it dies in year 12, and who eats the bill when production falls short.

Here's the table no installer hands you, followed by the decision rule that drops out of it.

The comparison, side by side

The four modes in one paragraph each

Cash — you write a check for the full installed price. You own the system. You claim the §25D federal credit¹if the system is placed in service on or before Dec. 31, 2025. You eat the inverter replacement in year 10–15. You capture every kWh of bill savings. Cash is the cleanest because there's no dealer fee, no escalator, and no contract counterparty to dispute with twelve years from now. The cost is opportunity cost on the deployed capital.

Loan — you borrow the installed price (typically at a teaser rate: 1.99%, 2.99%, 3.99%) and repay over 15–25 years. You own the system. You claim the credit. The catch is the dealer fee: Berkeley Lab documents financed solar prices including dealer fees of 5–50% of the upfront price², inflating the principal so the lender can offer a low headline APR. A loan with a 25% dealer fee at 2.99% can cost more than cash. The APR doesn't tell you because it's computed against the inflated principal.

Lease — you pay a fixed monthly amount (often with a 2–3% annual escalator) for the right to use the system. The installer or financier owns it. They claim the credit¹— or, for 2026+ installs, they claim the business-side §48E credit when they can. Lease payments persist for 20–25 years regardless of how well the system produces. At year 20, you typically get a buyout option, a renewal option, or removal. The big risk is at sale: a lease the buyer doesn't want is a deal problem.

PPA (Power Purchase Agreement) — you pay a per-kWh rate for the electricity the system produces. If the system underproduces, you pay less. If it overproduces, you pay more. The owner claims the credit¹. PPA rates typically escalate 2–4% per year. The question is whether the PPA rate (plus the escalator over 20–25 years) beats the utility rate (plus its escalator over the same window). Many PPAs don't, especially in markets where utility rates have been flat.

The decision rule

• If you can pay cash and the system is placed in service on or before Dec. 31, 2025, cash is almost always the lowest 25-year cost — and it preserves your credit claim¹.
• If you need to finance and the install completes in 2025, a loan is fine only if the dealer fee is small (under 10%) and the cash price is documented. Without a documented cash price, you have no way to size the dealer fee, and the loan can quietly cost more than cash.
• If install completes in 2026 or later, the §25D credit no longer applies to owned systems¹. A lease or PPA can capture the business-side §48E credit (through 2027) and route some of that value back to you via a lower payment — but only if the contract is structured that way. Read the rate, the escalator, and the buyout. Don't take the cover-page payment number at face value.
• If you might sell within 10 years, favor cash or loan (owned, conveys cleanly) over lease/PPA (buyer must assume — often kills deals). A solar lien on a financed loan can also complicate sale; ask before signing.
• If the installer only offers one payment mode, get a second quote from an installer that offers cash and loan options. A company that won't sell you cash is a company whose incentive is the dealer fee.

The mechanism behind dealer fees is its own subject — see solar loan dealer fees for the math. To compare a specific quote's cash and financed totals, run it through the solar loan calculator. And before any of this, confirm whether the install year qualifies for the credit at all in the tax credit checker.

1. 1. IRS Form 5695 (2025) instructions, verbatim: "You can't claim residential clean energy credits for expenditures made after December 31, 2025." The One Big Beautiful Bill Act, signed July 4, 2025, terminated §25D for systems placed in service after that date. Verified 2026-05-16. irs.gov/instructions/i5695 ↩
2. 2. Berkeley Lab, "Tracking the Sun, 2024 Edition" (Executive Summary, August 2024; data through year-end 2023; sample ~3.7M U.S. distributed PV systems). State-level median residential installed price in 2023: $3.20–5.20/W. Loan dealer-fee gap, verbatim: "a large portion of residential systems are loan-financed, and installed prices reported for these systems likely include dealer fees, adding anywhere from 5-50% to the total up-front price paid by the customer." Verified 2026-05-16. emp.lbl.gov · Tracking the Sun 2024 (PDF) ↩

Next: Test your cash-vs-financed gap in the loan calculator →