Solar lending

I. What is solar lending?

Solar lending refers to financing for residential and commercial solar panel installations. Lenders typically offer 10-25 year terms for systems averaging $20,000-$30,000. The global market reached $23.1 billion in 2024, growing at 15.2% annually and financing roughly 70% of installations.

Default rates run just 0.87% compared to 3.5% for typical unsecured consumer loans. But the operational reality behind these attractive numbers is considerably more complex than the credit performance suggests.

II. Why do fixture filings complicate solar lending?

Unlike most consumer loans, solar panels are equipment permanently affixed to real property. This creates UCC Article 9 fixture filing requirements across multiple jurisdictions.

The challenge: Lenders secure movable property that becomes part of real estate they don't own. When homeowners sell or refinance (average ownership span is seven years), fixture filings protect the lender's security interest from being wiped out by the property transaction.

Operational reality:

• County-specific requirements. Each filing requires a county-approved legal description, and requirements vary significantly across jurisdictions.
• High rejection rates. Without proper expertise, lenders face substantial rejection rates that create operational bottlenecks.
• Multi-state complexity. Portfolio management across different state filing systems requires dedicated infrastructure.
• Constant activity. About 6% of single-family homes sell annually, creating ongoing filing, amendment, and termination work.

Lenders scaling to 200+ new customers per month quickly find fixture filings become a significant operational constraint without automation.

III. How do dealer fees work in solar lending?

Most solar loans originate through installer partnerships rather than direct consumer applications. Installers pay lenders "dealer fees" (typically 10-30% of the loan amount) to offer financing options to their customers. These fees get built into the system price rather than appearing in the loan's annual percentage rate.

Here's where things get complicated. A homeowner might pay $30,000 for a financed system that would cost $23,000 in cash, but the APR calculation doesn't reflect that $7,000 premium. The CFPB issued a report in August 2024 expressing concern that borrowers don't understand the true cost difference between financed and cash purchases.

Combined with aggressive marketing around the 30% federal Investment Tax Credit, regulators worry that consumers see misleadingly low "net costs" without understanding the conditionality of tax credits or the dealer fee markup.

State attorneys general have followed with enforcement actions targeting marketing practices and tax credit eligibility representations. Transparent operations and compliant disclosures have become table stakes rather than competitive advantages. See our recent podcast where we discuss how solar lenders like Atmos Financial are working to address these transparency challenges through technology-enabled origination that reduces dealer fees while maintaining competitive economics.

IV. What makes solar loan cash flows unpredictable?

The 30% federal Investment Tax Credit creates unusual prepayment behavior that complicates portfolio management. Some loan structures assume borrowers will use their tax credit as a lump sum payment after year one, triggering re-amortization to lower monthly payments.

When borrowers don't prepay: Monthly payments jump to the originally calculated amount, significantly increasing default risk for borrowers who budgeted based on the lower post-credit payment.

When they do prepay: Cash flows become inconsistent across the portfolio, complicating securitization and secondary market sales.

Average loan payoff happens around year seven on 20-year terms due to home sales and refinancing. Solar installations typically increase property values by approximately 4.1%, which can accelerate the refinance cycle as homeowners tap into their increased equity.

Lenders need sophisticated cash flow modeling to manage this volatility and maintain portfolio health for securitization or resale.

Industry Note: Many lenders underestimate the 're-amortization cliff.' If your system doesn't automatically trigger notifications 60 days before the step-up payment, your customer service lines will likely see a 40% spike in volume.

V. What technology do solar lenders need?

Successful solar lending requires purpose-built systems that can handle the product's unique operational demands. LoanPro’s modern lending core provides the configurability solar lenders need to manage:

• Automated Fixture Filings: Manage multi-jurisdiction UCC requirements, track rejection rates, and maintain portfolio health across different state systems through customizable workflows.
• Conditional Re-amortization: Support complex structures where loan schedules automatically adjust based on actual prepayment behavior. LoanPro’s automation engine also handles the critical proactive communication—sending automated borrower "nudges" before the re-amortization date to prevent the 'payment jump' confusion that leads to service bottlenecks.
• Regulatory Compliance: Maintain a real-time ledger for CFPB-level transparency regarding dealer fees, marketing disclosures, and tax credit representations.

VI. Bottom line

Solar lending offers attractive credit performance with default rates well below typical unsecured consumer lending. But success demands operational sophistication traditional consumer lending doesn't require. The combination of fixture filings, dealer fee regulations, and tax credit cash flow volatility makes purpose-built infrastructure essential for lenders building sustainable solar portfolios.