Understanding How Changes in the Fed Rate Affect Solar Loans

We are often asked when the Fed lowers rates why it doesn’t translate into lower solar loan rates. We understand that it’s easy to make that assumption, but it’s not exactly how things work. Let us explain.

The Fed controls the “overnight rate” which impacts short-term interest rates. The financial markets forecast longer-term rates based on expectations about inflation and the economy. These longer-term rates are what set rates for many consumer-lending products (mortgages, car loans, solar loans, etc). When tariffs and tax cuts are implemented, the financial markets are forced to wrestle with long-term inflation, which will drive solar loan rates higher.

Interest rates for solar loans generally track with the seven-year Treasury rates. A sharp increase in these benchmark rates inflates the cost of funds and eventually impacts the seller’s points and APRs we can offer for our loan products.