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The Dark Side of Solar: Protecting Yourself from Collateral Loans in Solar Financing

Solar financing acts as a gateway to allowing homeowners and businesses to adopt solar solutions without the burden of high upfront costs and can be the deciding factor between installing solar or not. From empowering individuals to contribute to a greener planet to fostering economic viability, solar financing emerges as a key driver in the transition towards a more sustainable and energy-efficient future. In New Mexico, individuals and businesses seeking to embrace solar energy have access to various types of solar loans, each tailored to different financial preferences and circumstances. 

While a previous article dove into the dark side of solar tax credit claims, we will now share what to look out for in illusive collateral loans and how best to avoid solar installation companies that lack your best interest. 

What are Collateral Loans in Solar Financing?

There are a variety of solar loan options to explore when it comes to securing solar financing, from traditional solar loans to Property Assessed Clean Energy (PACE) financing, and collateral-based options. A collateral loan, often referred to as a secured loan, is a type of solar financing where the homeowner or business pledges an asset as security to the lender. The pledged asset, or collateral, acts as a guarantee for the lender in case the borrower discontinues paying the loan. In the context of solar financing, a collateral loan may involve using the solar installation itself or the borrower’s property as collateral. 

If the business or homeowner is unable to repay the loan, the lender has the right to seize the collateral to recover the outstanding debt. 

So what does all of this have to do with protecting yourself from malicious collateral loans?

Deceptive Solar Companies and Collateral Loans

Imagine this scenario: an unsuspecting homeowner is eager to start using solar energy. A malicious solar company, preying on that homeowner’s excitement, employs deceptive sales tactics to convince the homeowner to agree to an enticing offer. This offer is seemingly attractive; they let the individual know the solar loan comes with a 2.99 percent interest rate on a 25-year term loan with zero down payment. Lacking an understanding of solar financing, the homeowner eagerly signs up for the solar installation.

What the malicious solar company fails to mention, and what the homeowner sadly doesn’t realize, is that hidden within the fine print of the loan agreement is a substantial 25 percent organization fee, cleverly bundled into the loan amount. The salesperson’s deceptive tactics keep the homeowner unaware of this fee. The loan gets approved, and the solar installation proceeds, with the homeowner’s property serving as collateral

As time passes, unforeseen financial challenges, health issues, or other reasons lead the homeowner to default on the loan, triggering a series of detrimental consequences:

  1. Home Lien: In case you didn’t know, a home lien is a legal claim or interest that a lender may place on a borrower’s home as security for the solar loan. When a malicious solar installation company manipulates a homeowner into agreeing to a secured loan with the home as collateral, this means that the solar company has a legal claim to the property if the owner is unable to pay the outstanding loan balance. The lien becomes a cloud on the title, making it difficult to sell or refinance the home, which can create difficulty for an unknowing homeowner. 
  1. Accrued Interest and Fees: The hidden organization fee combined with the interest on the collateral loan can cause the outstanding balance to grow significantly from the initial loan amount. As the homeowner struggles to make payments, the unpaid interest and fees continue to accrue, making the debt grow larger and larger over time. For older homeowners, this can result in substantial financial hardships.
  1. Credit Impact: Failing to keep up on loan payments, or defaulting on the loan, can adversely affect the homeowner’s credit score due to the missed payments. A lower credit score can have long-lasting negative effects on their financial well-being, making it harder to secure credit or loans in the future.
  1. Possible Foreclosure:  If the homeowner’s financial situation doesn’t improve and the loan remains unpaid, the solar financing company could potentially initiate foreclosure proceedings. This could lead to the loss of the homeowner’s property, as the company seeks to recover its losses by selling the home. 

How to Avoid These Malicious Practices

To avoid falling victim to such manipulative practices, individuals should take proactive steps before signing any legally binding documents or committing to work with a solar installation company. Make sure you thoroughly read and understand all loan documents, seek independent financial advice, and approach offers with caution and skepticism. As we always say here at Organ Mountain Solar & Electric; if the offer seems too good to be true, it probably is!

Choosing a reliable solar company is paramount, and can make a tremendous difference for you and your finances in the future. Ensure transparency in loan terms, ask questions, and prioritize companies that have a proven track record, like Organ Mountain Solar & Electric. By staying informed and vigilant, homeowners can safeguard themselves against the dark side of solar financing, and embrace clean solar energy with confidence.

To learn more about Organ Mountain Solar & Electric services, contact our reputable team of solar professionals today!