If you’re a solar company and you love dealer fees, raise your hand...
...Nobody, really? Heh.
Is there anything more obnoxious in the solar industry than the lack of transparency in solar lending? Nearly every lender requires that you hide these dealer fees from your customers, which leads to everything from confusion to outright deception (too often the latter).
The desire for these fees to remain opaque is obvious:
It allows lenders to always offer low interest options, even in times of high prime interest rates, by simply buying down the rates with dealer fees. Because Americans love a deal, similar to the car market, anything with a low rate looks like a good deal, even if the sticker price is simply inflated without proper disclosure.
When these fees are baked into the price, the homeowner takes them as eligible for the Federal Investment Tax Credit, even though financing fees are explicitly prohibited from the ITC (See question 14).
Lenders get around this prohibition by cloaking dealer fees in something that is otherwise eligible for the ITC: a fee paid to the lender for the privilege of offering their loan products, which just coincidentally happens to be exactly what it would cost to buy down the interest rate.
Now in practice, when you have fees that range from 15-40%, nobody in their right mind would want to bake these fees into their overhead with the assumption of a static percent of financed deals, because if their financed deal proportion ever increased, the solar company would get absolutely destroyed, or be forced to radically increase their overhead.
However this is the only mechanism that the finance companies would have you absorb dealer fees into your pricing.
This is because if you read their fine print, passing the fees on or otherwise disclosing them, is against their terms. Of course, you could theoretically try to distinguish your cash and loan customers at your Inside Sales stage, but the second that someone says they would like to see both options, you are stuck.
Of course, even if it were possible to absorb the cost of these dealer fees into overhead, it would have the perverse effect of having your prized cash customers subsidize the cost of these dealer fees for your financing customers. You would be pressed to find anyone out there who paid cash for their solar system excited about finding out they paid $1,000-2,000 extra for their neighbor to finance their solar system.
In practice what happens is that solar companies are forced to pass these fees on to homeowners and try to explain the Rube Goldberg machine that is the solar lending industrial complex. Even a PhD in economics would have a tough time appeasing a homeowner who wants to know why they’re being charged 35% for the privilege of financing their solar system.
Alternatively, the system encourages other scrupulous solar companies to avoid using third party solar lenders at all, only taking cash customers who utilize their own home equity lines of credit or personal home construction loans to finance their projects on their own. Of course, that results in a smaller pool of potential customers and virtually guarantees that solar ownership remains the exclusive domain of the upper class.
Fortunately, at Ipsun Solar we have chosen to almost exclusively sell the most transparent solar lending product:
the prime rate product with no fees at all.
This allows us to sell at the same cash price as our financed price, sidestepping the conversation almost entirely.
Well as soon as we go up against a competitor offering a .99% loan, we have to explain to the homeowner that they are simply paying 20 years of interest upfront in the form of dealer fees that are entirely opaque to them, whereas we are giving them the transparency of a prime rate loan, which they can pay off early to save on their lifetime interest cost.
Again, this is a math lesson that no solar salesperson wants to have, because it’s complicated and confusing to the homeowner.
I hope you’re sitting down, because this is going to be a truly ground-breaking and earth-shattering thought:
**how about we pass a law to mandate Truth in Solar Lending? **
Congress should pass a law mandating that if a solar lender wants to charge fees for the privilege of offering their loan products, those fees must be disclosed separately in a line item to the homeowner with a disclaimer that they are not eligible for the ITC. Imagine that, we do the same thing for solar lending that has existed for home mortgages for 55 years!
So what would the result be of this radical idea?
Well there is one downside: the ability to manipulate these dealer fees into something that ends up being eligible for the ITC, and thereby reducing the homeowner’s monthly payments, would be a thing of the past.
But since financing costs were never eligible in the first place, and very few if any solar companies are baking these fees into their overhead in the first place - we would simply be abiding by the spirit of the ITC as written.
But what would the upsides be?
First: we would probably never have to utter “dealer fees” again because there would be no advantage to solar lenders making these fees opaque. What would the point be to offering a .99% 20-year loan with a 35% dealer fee if you actually had to tell the customer that’s what they were paying?
They would probably simply cease to exist.
Second: it would add an enormous amount of credibility to a solar industry beset by selling snake oil to unsuspecting homeowners, among the many other deceptions. Ever wonder why the solar industry gets a bad name? It’s death by a thousand cuts, and dealer fees are just one of many from poor workmanship to fly-by-night installers to the factionalizing of sales and installation leaving the homeowner wondering who’s who and to the opaqueness of the solar lending industry.
Now, if you’re honest, above-board, ethical solar company who puts people above profit and mission above all else: raise your hand if you’d like to do away with dealer fees once and forever.
I’m guessing that a whole lot more hands were just raised.
We’re learning a lot and so will you.
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