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Secured vs Unsecured Solar Loans: What’s the Best Choice for Durham Residents?

Solar companies in Durham routinely promote only one type of solar loan – an unsecured solar loan. That’s because solar contractors usually partner with solar financing agencies to offer solar loans to ease the purchase journey of solar buyers, and unsecured loans get processed fast and easily.  There are entire companies that base their business model on solar loans from homeowners such as Sungage Financial, Mosaic, Sunlight, Concert, and Sunnova. So, for the sake of convenience and to simplify the solar purchase process, solar companies exclusively offer these unsecured solar loans to customers. However, Durham residents can also opt for secured HELOC  loans through their mortgage provider. But, should they?

Today, we shall compare the two types of solar loans and help you find the right option for your purpose.

Secured Solar Loans

Loans for which you pledge an asset as collateral are known as secured loans. The collateral can be anything of value, which is acceptable to your financers, such as your house, residential land, agricultural land, or something else. It is entirely up to the financer – bank or private lender – to determine whether the asset you offer as a pledge is acceptable to them or not. Most lenders accept a house with sufficient equity as collateral.  The most common way a secure loan is used in solar is through a HELOC or a Home Equity Line of Credit.

Pros

  • Low-interest rates and fees: this is the biggest advantage of secured loans. Because the risk for lenders is the lowest, they happily offer you the lowest payments on the loan
  • Not only are the interest rates low, but the interest payments are also tax-deductible
  • Relaxed terms: since an asset protects the loans, the lenders are generally lenient when granting the loan, even when your credit score is on the lower side

Cons

  • Applications can take several weeks to get processed
  • Defaulting on payments can lead to foreclosure and repossession of your asset.The lender may restrict the expenditure of the loan amount to specific purposes only, and with a home equity line of credit for example, that purpose may not include the solar purchase.
  • Secured loans as a product are virtually non-existent in solar financing.  So you will have to go through your personal lender.

Unsecured Solar Loans

Unsecured loans are not protected by any collateral, which means that the lender is taking a bigger risk on the loan. However, that doesn’t mean you can default on these loans without consequences. Default, or even delayed payments, can compel the lender to report you to credit rating agencies, which can cause your credit score to plummet fast. 

This has some implications for the borrower.

Pros

  • Since there’s no collateral involved, the borrower does not risk losing any of their assets
  • Unsecured solar loans are usually processed fast, because of the close coordination between your solar contractor and the lender
  • Unsecured solar loans from solar companies come with highly favorable terms like $0 down payments, 0% interest rates for the first 2 years, and so on.

Cons

  • They may cost more than a secured loan.
  • The interest you pay is not tax-deductible

Pick Your Solar

There’s a perfect solar loan that works for everyone! You choose one that works for you best. Now, you better understand the benefits and drawbacks of each type of solar loan. Therefore, you can make a better decision about which loan to choose.

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