i am your guide to solar finance

Interest free loan

With an interest-free loan you pay nothing upfront for the system. You pay the system off over the term of the loan, usually two to three years. Interest-free loans generally have relatively high fixed payments over the term of the loan.

While you pay nothing up front for the solar system there are potentially other upfront costs for the finance and installation.

Also known as an interest free payment plan/finance

Finance details

Period Interest Rate Early repayment possible
1-5 years 0% Sometimes

Ownership of the solar  system

  • You own the solar system. 

 

Financing costs, fees and charges

  • There are no interest charges.
  • There is potential establishment and monthly service fees. 

Performance and maintenance costs

  • You are responsible for monitoring system performance and the costs of any out-of-warranty maintenance required. 

 

Advantages

  • A low total costs over the life of the system, due to low finance costs - no interest payments.
  • You get the full benefit of bill savings after two or three years.

 

Disadvantages

  • You are paying more for the system if you are tied to suppliers who offer interest free period.
  • Your repayments are high because of the short term of the loan.
  • The repayments are probably greater than bill savings until the system is paid off. 

 

Managing risks

  • You are responsible for making sure the system produces as much as you expect and that you use the energy it produces.
  • If you do not pay the system off within the interest free period this option can be expensive. Make sure you can afford and make the repayments.
  • Suppliers who offer interest free periods sometimes have higher initial prices for products. Ask for quotes and compare prices for interest free products.

Example

Below is an illustration of how the costs and bill savings could work for interest free loans. 

In practice these costs and bill savings will vary depending on what you pay for the system, how much energy it produces, how much you use, and the period and costs of any payment plans or financing. 

Scenario

Solar project

 

Solar system size (kW)

3kW

Upfront system cost ($ net STC subsidy)

$5,200

Proportion of power used (%)

67%

Life of system

25 years

Maintenance costs

(Assume a new inverter is required every 10 years)

$4,300

Cost of daytime grid electricity

$0.20 to $0.51 / kWh

Payment conditions

Deposit/initial payment

$0

Term of finance

2 years at 0% interest rate, $100 establishment fee and $60 annual loan servicing fees

Comparison interest rate

3%

Costs and bill savings

Total payments

$9,700

Total bill savings

$20,600

Net savings

$10,900

 

Effective interest rate

3%

Lifetime unit cost of energy

0.14 $/kWh

The chart below illustrates the annual cash flow of energy bill savings and the costs of the solar system and finance based on this scenario.

Interest-free loanpurchase of 3kW system for household at home during work days

The chart shows that the upfront costs are spread over the first two years, and the costs are greater than energy bill savings during this time. For the remaining 23 years the solar system delivers almost $1000 in net energy bill savings each year. The exception is years 10 and 20 when the inverter needs to be replaced.

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Page last updated: 18 December 2015