Calculator
Solar Loan vs Cash Purchase Calculator
A solar loan changes the question from 'can I afford the system' to 'does the saving exceed the repayment'. When it does, the system is cash-flow positive from the first month even though it is not yet paid for.
This calculator compares the two routes on the terms that matter: monthly position, total interest paid, and the net benefit over the analysis period.
Compare the two routes
Monthly repayment
€107.09
Average monthly saving in year 1
€104.17
Shortfall of €2.92 a month
Total interest paid
€2,281
25.3% of the system cost
Net benefit over 20 years — loan
€20,650
Net benefit over 20 years — cash
€22,931
Interest forgone on the cash
€5,748
If the money had stayed invested
Better route on these numbers
Loan
Ignoring liquidity preference and risk
How the calculation works
The repayment is a standard annuity: principal times the monthly rate, divided by one minus the compounded discount factor over the term. Nothing about solar changes that arithmetic.
The comparison then runs two parallel cash flows. The cash route pays everything up front and keeps every euro of saving. The loan route pays a deposit, receives the same savings, and hands part of them back as repayments until the term ends.
The fair comparison also credits the cash route with the return the money would have earned elsewhere. Without that term, cash always appears to win, which is a modelling artefact rather than a financial truth.
The formula
M = P × i / (1 − (1+i)^(−n)) Interest = M × n + D − C Loan NPV(simple) = −D + Σ (S_y − 12M·[y≤T]) Cash NPV(simple) = −C + Σ S_y − opportunity cost P principal · i monthly rate · n months · D deposit C system cost · S_y year-y saving · T loan term
Assumptions behind the numbers
- The loan is a fixed-rate amortising personal or green loan with no early-repayment penalty and no arrangement fee. Add fees to the system cost if they apply.
- Savings are treated as arriving evenly through the year, which flatters winter months in northern climates.
- Neither stream is discounted here; the comparison is on nominal totals plus an explicit opportunity cost for the cash route. Use the NPV calculator for a fully discounted treatment.
- Tax relief on loan interest is not modelled and rarely applies to residential systems in Europe.
- The system is assumed to perform as expected. A loan converts performance risk into a fixed obligation, which is a real, unmodelled risk.
How to read the result
The critical test is the first line: does the monthly saving exceed the repayment? If it does, the system funds itself and the loan route costs nothing in cash-flow terms, only in total interest.
Cash is almost always cheaper in absolute terms, because no lender charges less than a household earns on deposits. The loan buys liquidity, and liquidity has value that this model cannot price for you.
A longer term lowers the monthly payment and raises the total interest. Choose the shortest term where the repayment still sits comfortably below the saving.
Worked example
A €9,000 system with a €1,000 deposit is financed over eight years at 6.5% APR, saving €1,250 in the first year with 2.5% escalation.
The €8,000 principal repays at €106.97 a month, or €1,284 a year, against a first-year saving of €1,250 — a €34 annual shortfall that disappears in year two as tariffs rise. Total interest is about €1,269, or 14% of the system cost.
Over 20 years the loan route nets roughly €19,700 and the cash route €21,000. Crediting the cash with 2.5% compound returns over the same period, worth about €5,700, reverses the ranking: the loan preserves capital that earns more than the loan costs net of the saving stream. Which route wins depends almost entirely on what the household would do with €9,000 otherwise.
Mistakes that skew the answer
- Comparing a monthly repayment against total annual savings divided by twelve without checking seasonality — a heat-pump household may be well short in December.
- Ignoring arrangement fees and payment protection insurance, which can add several hundred euros.
- Using a zero opportunity cost for cash, which biases the comparison.
- Taking a term longer than the inverter warranty, so the replacement arrives while the loan is still running.
- Signing a loan tied to a specific installer at an above-market rate because it is bundled with the quotation.
Questions readers ask
- Is it worth borrowing to install solar?
- If the annual saving exceeds the annual repayment, yes in cash-flow terms, and the household keeps its capital. If the rate is above roughly 8 to 9% the interest starts to consume most of the benefit, and a smaller cash-funded system usually returns more.
- What loan rate makes solar not worth financing?
- As a rough test, compare the loan rate with the project IRR. If the IRR is 12% and the loan costs 6.5%, borrowing is accretive. When the loan rate approaches the IRR, the borrowed system creates almost no value for the owner.
- Should I take a longer term to reduce payments?
- Only as far as necessary to stay cash-flow positive. Every extra year adds interest, and terms beyond 10 years increase the chance of the inverter replacement landing mid-loan.
- Does a green loan differ from a personal loan?
- Usually only in the interest rate and in requiring proof of installation. Some national schemes subsidise the rate, which can make financing materially cheaper than a standard consumer loan. Check what is available before accepting an installer's finance offer.
- What about power purchase agreements or leasing?
- They remove the capital outlay entirely but also most of the benefit, and they attach a long contract to the property. Compare the effective price per kilowatt-hour they charge with the LCOE of an owned system before signing.