Is an RRSP Loan Worth It? The Math on Borrowing to Contribute

By Jordan Ellis · Published August 21, 2026 · Reviewed September 14, 2026

Quick Answer

An RRSP loan is worth it only when three conditions hold: your current marginal tax rate clearly beats your expected retirement rate, the refund immediately pays down the loan, and the balance is gone within about 12 months. Borrow $10,000 at 7% for a year and you pay roughly $400 in interest against a refund of about $2,400-$4,300 depending on your bracket — a clear win on paper. Stretched over 5 years, or spent refund, the same move loses to simply contributing monthly.

Every February the banks offer to lend you money to save. Sometimes it’s genuinely smart arithmetic. Here’s how to tell in about two minutes.

The math, one example

Borrow $10,000 at 7%, contribute before the RRSP deadline, deduct against a salary taxed at a 30% marginal rate (roughly a $70,000 income in Ontario):

Interest over 12 months: ~$400
Refund: ~$3,000 → applied to the loan the day it arrives
Remaining loan: $7,000, paid off over the year at about $607/month
Net: $10,000 compounding inside the RRSP for a total financing cost of ~$400, plus a $3,000 refund that did most of the heavy lifting

That’s the good version. Check what the deduction is worth at your own income with the RRSP vs TFSA calculator.

The three conditions that make it work

Your bracket today beats your bracket in retirement. Deduct at 38%, withdraw at 22% — that’s the spread the whole RRSP is built on. At a 24% bracket the trade gets thin; see RRSP vs TFSA: which first.
The refund retires the loan. Not a vacation, not a TV. The refund hitting the loan is what converts leverage into savings.
Gone within ~12 months. Interest is the enemy of the strategy. At 12 months it costs ~4% of the contribution; stretched to 5 years it costs ~19% and the math flips against you.

When to skip it

Low-income year. Save the room; contribute when your rate is higher. Room never expires.
You’d be borrowing for the refund, not the retirement. If the plan for the refund is spending, you’re just financing consumption at 7% with a future tax bill attached.
Your emergency fund is empty. RRSP withdrawals cost withholding tax and permanently destroy room — our withholding tax guide shows the damage. Liquidity first.
The loan amortizes past a year. A 5-year RRSP loan is a product designed for the bank’s February targets, not your net worth.

The boring alternative that usually wins

Set an automatic transfer of $835/month into your RRSP starting this month. Same $10,000 a year, zero interest, no deadline, no credit check — and your payroll can even reduce source deductions with a T1213 so the refund arrives every paycheque instead of every spring. Not as exciting as a lump sum. Better in almost every way that compounds.

Official sources

Rules and dollar limits change. Confirm current amounts with the official pages below before you act · Last reviewed September 14, 2026.

Tax rates on RRSP withdrawals (Canada Revenue Agency)
RRSPs and related plans (Canada Revenue Agency)

Frequently Asked Questions

How does an RRSP loan work?

You borrow a lump sum — typically around prime plus 0.5-1% at the banks (about 5-5.5% with prime at 4.45% in September 2026; the examples here use a more conservative 7%) — contribute it to your RRSP before the deadline, deduct it against this year's income, and use the tax refund to pay down the loan. The strategy converts a future refund into a larger invested balance today.

Is borrowing to contribute to an RRSP a good idea?

It depends entirely on your bracket and discipline. Deducting at 38% while paying 7% interest for under a year is a solid trade. Deducting at 24%, amortizing the loan over 5 years, and spending the refund is worse than doing nothing — monthly TFSA contributions beat it.

How much interest does an RRSP loan cost?

On $10,000 at 7% repaid over 12 months, roughly $380-$400 in interest. Over 5 years, about $1,900 — which is why the repayment timeline, not the rate, decides whether the strategy wins. Most banks offer RRSP loans at prime plus a half to one point, with the first payment sometimes deferred 90 days so the refund can land first.

What should I do with the tax refund from an RRSP loan?

Pay it straight onto the loan — that is the entire strategy. A $10,000 contribution at a 30% marginal rate refunds about $3,000, cutting the loan to $7,000 instantly. Spending the refund leaves you with full debt, full interest, and a future tax bill on withdrawal.

RRSP loan or monthly contributions — which is better?

For most people, automatic monthly contributions win: no interest, no deadline panic, and dollar-cost averaging. The loan makes sense as a one-time catch-up in a high-bracket year when you have idle contribution room and a refund large enough to retire most of the debt immediately.