Path-Q Solar

Should financing interest be included in the solar payback calculation?

Answer

Include financing interest when measuring the homeowner's actual cash recovery, but also show a separate cash-purchase or system-only payback. This distinguishes the economics of the solar system from the cost of the chosen financing.

Key points

  • System-only payback compares the system cost with solar-related savings.
  • Financed-cash-flow payback includes interest, loan fees, and the timing of payments.
  • A loan may make monthly cash flow negative even when the system-only payback looks attractive.
  • Compare total payments, not just the advertised monthly payment.

What it depends on

  • Loan principal
  • Interest rate and whether it can change
  • Loan term
  • Origination or dealer fees
  • Prepayment terms
  • Timing and amount of utility savings

Risks and trade-offs

  • Including financing costs can make the project look less attractive but better reflects the borrower's outcome.
  • Excluding interest may overstate returns for a highly financed purchase.
  • A longer term can reduce the payment while increasing total cost and extending the period of financial exposure.

Information you may need

  • Cash price of the system
  • Complete loan disclosure, including fees and total scheduled payments
  • Expected annual or monthly savings
  • Whether the analysis is intended to compare systems or personal cash flow

Your next step

What to do next

Calculate both system-only payback and financed payback using the lender's full amortization schedule, including all fees.

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SQ01652