Financial Planning

Should You Get an RRSP Loan? Benefits and Considerations

By | | 7 min read

When Does an RRSP Loan Make Sense?

An RRSP loan can be beneficial when: you have unused RRSP contribution room, you're in a higher tax bracket (25%+ marginal rate), you can repay the loan quickly (ideally within 1 year using your tax refund), interest rates are reasonable.

How to Calculate If It's Worth It

Compare the tax refund to the loan interest. Example: $10,000 RRSP contribution at 40% marginal rate = $4,000 refund. If loan interest is $400 (4% for one year), you're ahead by $3,600 plus investment growth. The higher your tax bracket, the more beneficial the loan.

Strategies for Maximizing RRSP Loan Benefits

Use your tax refund to immediately pay down the loan. Consider borrowing only what you can repay within 12 months. Look for promotional rates from lenders during RRSP season (January-March). Combine with employer matching if available.

When to Avoid an RRSP Loan

Skip the RRSP loan if: you're in a low tax bracket (under 25%), you have high-interest debt to pay off first, you can't repay within 1-2 years, interest rates are high (above 8-10%).

Frequently Asked Questions

Is interest on an RRSP loan tax-deductible?

No, interest on an RRSP loan is not tax-deductible because the borrowed funds are going into a tax-sheltered account. This differs from investment loans for non-registered accounts where interest may be deductible.

How quickly should I repay an RRSP loan?

Ideally within 12 months, using your tax refund to make a large payment. The longer you carry the loan, the more interest eats into your benefit. Many financial advisors recommend repayment within 1 year maximum.