Solar loan dealer fees: how to find the markup inside a low APR

What a dealer fee is, in the lender's own arithmetic

Point-of-sale solar loans are usually arranged by the installer, through a lender the installer has an agreement with, at the same table where you sign the installation contract. The CFPB's August 2024 issue spotlight on solar financing describes the pattern plainly: the lender pays the installer the cash price of the project and keeps an extra amount that has been added to the loan principal. The industry calls that amount a dealer fee, a program fee, a platform fee, a finance fee or an original issue discount. The names differ; the mechanism is the same.

The CFPB's own example uses a project that would cost $30,000 in cash. A $9,000 fee, 30 percent of the cash price, is added, so the loan documents show a principal of $39,000. The installer receives $30,000, the lender keeps $9,000, and the borrower pays interest on all $39,000. The report adds that lenders typically leave these fees out of the total cost of credit they present, and that salespeople often do not explain the difference between the cash price and the loan principal.

Why would anyone structure a loan this way? Because the fee buys the rate down. A lender that collects 25 or 30 percent of the project at the start can afford to charge a very low interest rate on the balance and still earn its return, the same way a mortgage borrower can pay points at closing to get a lower rate. The difference is that mortgage points are itemized on a closing disclosure, while a solar dealer fee usually appears only as a higher system price or a higher amount financed. The CFPB spotlight reports stated solar-loan APRs typically ranging from 1 to 7 percent, and notes that those APRs often do not include the fees that increase the principal.

Watch which base a fee percentage uses. Lenders and installers often quote the fee as a share of the amount financed, while the CFPB example expresses it as a share of the cash price. The formula that links them is amount financed = cash price / (1 minus the fee share). A fee described as 25 percent of the loan is a 33 percent markup on what the system costs in cash, as the table shows.

The CFPB spotlight quotes consumer complaints that show how the arithmetic looks from the kitchen table. In one, a homeowner reports being told that financing through a particular lender required adding 26 percent of the total cost of the system as an upfront fee, on a loan described as 1.99 percent for 25 years, and that the lender said the APR was the same as the interest rate. Run that structure through this page's method as an illustration: on a $23,600 cash price, a fee of 26 percent of the cash price makes the amount financed $29,736, the payment at 1.99 percent over 300 months is $125.89, and that payment repays $23,600 at about 4.10 percent a year. The two rates describe the same loan; only one of them describes what the system cost.

Finding your dealer fee in the paperwork

You do not need the lender to admit a fee exists. You need two numbers from documents you are entitled to see before signing, and a third that confirms them.

1. Get the cash price in writing. Ask the installer for the price of the identical system, same equipment, same scope, if you pay in cash or bring your own financing. This is the number the whole test depends on. A seller who will not write it down has answered the question for you.
2. Read the amount financed on the loan disclosure. Regulation Z section 1026.18 requires closed-end consumer credit disclosures to state, as applicable, the amount financed, the finance charge, the annual percentage rate and the total of payments. Find the amount financed, not the monthly payment.
3. Subtract. Amount financed minus cash price, after removing any down payment you are making and any items financed that are genuinely separate from the solar contract, is the fee in dollars. Divide it by the cash price to get the markup percentage.
4. Check the installation contract price. If the installation contract shows a price equal to the amount financed rather than the cash price, the fee has been folded into the system price itself. Compare that contract price per watt with the cash quote per watt.
5. Compare per watt against other quotes. Divide each quote's price by its system size in watts DC. A financed quote at $3.85 per watt beside a cash quote at $2.95 per watt for the same equipment has its fee showing in plain sight, and the quote comparison tool lines several quotes up this way.

Why the payoff date decides whether the low rate was a bargain

A dealer fee is prepaid interest. Prepaid interest is cheap if you keep the loan for its full term, because its cost is spread over every month. It is expensive if you pay the loan off early, because you paid for years of low rates that you never used. That timing question matters more for solar loans than most loans: the CFPB spotlight, citing industry data, reports that solar loans with terms of 8 to 25 years are typically repaid in 7 to 9 years. Homes get sold, loans get refinanced, and some borrowers pay down principal with windfalls.

The table below runs one illustration. Loan A is the fee-loaded offer: $30,800 financed at 1.99 percent for 25 years on a system with a $23,600 cash price, so the fee is $7,200. Loan B is a no-fee alternative: the $23,600 cash price financed at 7.99 percent for 25 years. Both rates are illustrations chosen to show the mechanics, not market quotes; substitute the offers in front of you. For each holding period, the table shows payments made, the payoff balance at that date, the total cash out of your pocket, and Loan A's effective annual rate measured against the $23,600 you actually received in equipment.

On these inputs the two loans cost the same at month 70, a little under six years. Before that, the no-fee loan at the higher rate wins; after it, the fee-loaded loan does. Notice the right-hand column: kept for its full term, the 1.99 percent loan behaves like a 4.44 percent loan on the real price of the system. Paid off after two years, it behaved like a 16 percent loan. The advertised rate described neither outcome.

Two conclusions follow, and they cut in different directions. A dealer fee is not automatically a bad deal: for a household that will keep the loan for a decade or more, a fee-loaded loan can cost less than the alternatives available to it. But it is never a 1.99 percent loan, and it is a poor fit for anyone who expects to sell within about five years, which is why the sale timeline in payback if you move or sell belongs in the financing decision, not after it.

Recomputing the rate yourself

You can reproduce the right-hand column for any offer with a spreadsheet. The idea is simple: find the interest rate at which the loan's payments would repay the cash price, rather than the inflated principal.

1. Compute or read the monthly payment on the loan as offered. In a spreadsheet, PMT(rate/12, months, -amount financed) gives it; for Loan A, PMT(0.0199/12, 300, -30800) returns $130.40.
2. Ask what rate turns that payment into the cash price. RATE(months, -payment, cash price) multiplied by 12 gives the annual rate measured on the cash price. RATE(300, -130.40, 23600)*12 returns about 4.44 percent.
3. For an early payoff, add the balance at the payoff month as a final payment. RATE(84, -130.40, 23600, -23657)*12 returns about 6.66 percent, the seven-year row in the table. The payoff balance at any month appears on the lender's amortization schedule, or a payoff quote will state it.
4. Compare the result with the rate on a no-fee option you could actually get: a credit union or bank loan, a home equity line, or cash you would otherwise keep earning interest.

Two cautions. This measure is not the APR as Regulation Z defines it; it is a comparison tool that treats the fee as a cost of borrowing so that two offers can be compared on the same base. And the result is only as good as the cash price. If the cash price itself is padded, the fee calculation looks smaller than the true markup, which is why the per-watt check against other quotes and the red flags in the quote itself come first.

What the federal disclosure does and does not capture

Regulation Z, the rule that implements the Truth in Lending Act, defines the finance charge as the cost of consumer credit as a dollar amount, and it lists loan fees, points, finder's fees and similar charges among the examples. The same section says the finance charge does not include any charge of a type payable in a comparable cash transaction, and the CFPB's official interpretation explains that the comparison is between the credit transaction and a similar cash transaction. One of its examples is direct: where a tract of land costs $9,000 for cash and $10,000 when financed with the seller, the $1,000 difference is a finance charge.

The rule also contains an exclusion for seller's points: charges a creditor imposes on the noncreditor seller of property for providing credit to the buyer are excluded from the finance charge even if they are passed on to the buyer, for example in a higher sales price. Solar lenders generally structure dealer fees as a charge to the installer, not to the homeowner, and that structure is part of why the fee may not appear in the disclosed finance charge or APR. Whether a particular solar fee belongs inside or outside the finance charge is a legal question that regulators, lenders and state attorneys general have argued about; the CFPB spotlight cites a 2024 lawsuit by Minnesota's attorney general against several solar lenders among its sources on hidden fees. This guide does not decide that question for any loan.

For a homeowner, the practical upshot is narrower and more useful. The disclosed APR on a solar loan may describe only the interest on the inflated principal. The comparison that protects you does not depend on how the fee is classified: cash price versus amount financed, and the recomputed rate on the cash price.

Secured or unsecured, and why the honest loan can look worse on paper

Two more facts from the CFPB spotlight change how to read competing offers. The first is collateral. Some solar loans are secured, typically with a lien on the panels themselves, while others are unsecured, and the CFPB notes that, as in other consumer lending, secured loans usually come with lower APRs than comparable unsecured loans because the lender has the right to repossess the panels for nonpayment. A low rate can therefore be bought twice, once with a dealer fee and once with a lien, and the lien has its own consequences at a refinance or sale that the lien and refinance guide works through. When you compare two offers, write down which one is secured and by what, next to the rate.

The second fact explains why the fee structure persists. The spotlight reports that some industry participants offer loans with no markup on the cash price, pricing all costs of credit into the APR instead, and that they acknowledge it is difficult to compete for customers when their disclosed cost of credit is higher than that of lenders who charge hidden fees, even when their all-in cost is actually lower. In plain terms, the loan that tells you everything in its APR can look like the expensive one. That is the strongest argument for the recomputation on this page: it puts a fee loan and a no-fee loan on the same base, the cash price, so the comparison stops rewarding the offer that discloses least.

The same report gives a sense of how many households face this choice. It cites an industry report that in 2023 loans financed 58 percent of the at-home residential solar market, against 19 percent paid in cash and 23 percent under third-party ownership such as leases and PPAs. With 58 percent of that market financed by loans, the dealer fee question is not an edge case. If you are weighing ownership itself rather than one loan against another, the lease, buy or PPA guide compares the three structures on full-term totals.

Loans built around a tax credit that no longer exists

Many solar loans written before 2026 were designed around the federal residential clean energy credit. The CFPB spotlight describes a common structure: the loan re-amortizes to a higher monthly payment at the 19th month unless the borrower makes a substantial prepayment first, frequently 30 percent of the principal, the size of the credit at the time. Borrowers who did not receive the credit as cash, or spent it, faced a payment jump.

That credit is gone for new systems, though a 2025 install still files on Form 5695. The IRS page for the residential clean energy credit, last reviewed July 4, 2026, states that the credit is not available for any property placed in service after December 31, 2025. A loan offered in 2026 that still shows a low introductory payment until a large prepayment in month 18 or 19 is asking you to fund that prepayment from your own savings. Treat the higher, post-re-amortization payment as the real payment, and test the loan on that number. The credit status page covers the law in more detail, including why the installation date rather than the purchase date decides eligibility.

Some sales material still shows a net cost after a presumed 30 percent credit in large type, with the actual loan amount in small type. The CFPB described exactly that presentation in 2024. For a system placed in service in 2026, any federal credit subtracted from the price is a figure that does not apply, and it belongs on the list of red flags in the door-to-door sales guide. The loan's payment also counts in a later mortgage application, and a recorded filing can need subordination; the refinance guide shows the arithmetic, and the PACE guide covers the assessment alternative that rides on the tax bill.

Choosing between fee and no-fee financing

Once the fee is visible, the decision reduces to a few questions about your own plans, and the cash-versus-loan guide turns the fee into a rate you can hold against your alternatives. The framework below is not a recommendation; it is the order in which the numbers usually settle the answer.

Home equity borrowing is a common no-fee alternative, with its own risk: the home secures the debt. EnergyBS works through that comparison in its HELOC versus solar loan analysis, so this page does not repeat it. Whatever the source of money, run the result through the payback method with the financing cost included; a payback figure that ignores interest describes a cash purchase you are not making.

Questions that get the cash price on paper

A cash price rarely appears on a financed proposal unless you ask for it, so ask directly and in writing. The aim is a single page you can compare. Useful wording, in your own voice:

• "Please send the total price for this exact system and scope if I pay cash or arrange my own financing."
• "What is the dealer, program or platform fee on this loan, in dollars, and is it included in the system price or the amount financed?"
• "What would the rate be on a loan with no dealer fee, and what is the amount financed on that version?"
• "Does this loan have a payment change at month 18 or 19, and what is the payment if I make no prepayment?"
• "Is there a prepayment penalty, and is the loan secured by a filing on the equipment or the property?"

Answers given only out loud do not count. If the contract price matches the amount financed rather than a lower cash price, ask for both documents to be reissued with the cash price stated. And take the time to read them away from the kitchen table; the CFPB spotlight notes that tablet-based signing makes it easy to move past the pages that matter. If the sale happened at your home, the Federal Trade Commission's Cooling-Off Rule generally gives you until midnight of the third business day to cancel covered door-to-door sales, a window the scams guide explains in full.