Are RRSP Loans Worth It in 2025? Smart Strategy or Risky Move?

If you’re racing against the RRSP deadline 2025 and short on cash, you might be tempted by an RRSP loan. But are RRSP loans worth it? The short answer: they can be smart in specific situations—but risky if misused. In this guide, we’ll break down how RRSP loans work, when they make sense, when to avoid them, and how they fit into your bigger retirement strategy using the Retirementize income calculator.

What Is an RRSP Loan?

An RRSP loan is money you borrow—usually from a bank or credit union—to make an RRSP contribution before the deadline. The goal is to generate a larger tax refund and boost your retirement savings faster. Most financial institutions offer “RRSP top-up loans” designed to cover contribution shortfalls. These loans are typically short-term (1–12 months) and repaid using your upcoming tax refund or other savings.

For example, say you want to contribute $10,000 to your RRSP before the March 3, 2025 deadline but only have $4,000 saved. You borrow $6,000 at 6% interest for one year. Your $10,000 contribution gives you a tax deduction worth around $3,000 if you’re in a 30% marginal tax bracket—enough to repay half the loan right away.

Why Canadians Consider RRSP Loans

RRSP loans are appealing because they let you take advantage of RRSP contribution room even when cash flow is tight. A recent RBC Financial Wellbeing Study found that nearly one in five Canadians plans to use an RRSP loan at some point to avoid missing the contribution deadline.

• Tax savings now: Contributing before the deadline means an immediate deduction on your 2024 taxes.
• Compound growth: Investing a larger lump sum sooner means your money starts earning faster.
• Automatic discipline: A repayment plan forces consistent saving behavior.

Still, RRSP loans aren’t for everyone. Let’s explore the benefits—and the pitfalls.

How RRSP Loans Work

Financial institutions usually offer RRSP loans in amounts ranging from $1,000 to $50,000. You can choose either a short-term “top-up” loan or a longer-term loan up to 10 years. Interest rates are generally close to prime plus 1–3%.

Example of RRSP Loan Payback

Let’s say you borrow $8,000 at 6% interest for one year to maximize your RRSP. You’ll pay around $490 in interest over 12 months, but your tax refund might be $2,400 (assuming a 30% tax bracket). If you use your refund to repay most of the loan, your net cost is low, and your RRSP grows faster.

However, if you carry high-interest credit card debt or can’t repay the loan quickly, the benefits may evaporate fast.

Pros of Using an RRSP Loan

• Instant tax benefit: You can claim the full deduction right away for the 2024 tax year.
• Accelerated investment growth: Larger early contributions compound for longer periods.
• Credit-building potential: Consistent repayment improves your credit score.
• Great for unused RRSP room: If you have carry-forward room, you can “catch up” in one go.

When used strategically, an RRSP loan can jump-start your retirement savings—especially for younger investors who have many years for compound growth to work its magic.

Cons and Risks of RRSP Loans

• Interest costs: The loan’s interest isn’t tax deductible, reducing your overall benefit.
• Market risk: If markets fall, you could owe money on investments that have lost value.
• Debt stress: Adding to your liabilities could strain cash flow or credit utilization.
• Refund temptation: Spending your tax refund instead of repaying the loan undermines the purpose.

In short, borrowing to invest only works when you’re disciplined. If not, you might just be swapping long-term growth for short-term debt.

When RRSP Loans Make Sense

RRSP loans tend to work best in these situations:

• You’re in a high tax bracket (30%+), so the refund significantly offsets interest costs.
• You can repay within one year, ideally using your refund.
• You’re catching up on unused contribution room from previous years.
• You have stable income and a solid budget to handle payments.

For instance, if you earn $90,000 annually and have $15,000 of unused RRSP room, an RRSP loan could net a $4,500 refund—more than enough to cover interest and boost your long-term savings by tens of thousands over time.

When RRSP Loans Don’t Make Sense

There are also clear red flags:

• You’re already carrying high-interest debt (credit cards, lines of credit).
• Your job or income is uncertain.
• You can’t resist spending your tax refund.
• You’re nearing retirement, and repayment could strain cash flow.

In these cases, it’s better to contribute smaller amounts or switch to a monthly savings plan instead of taking on new debt.

Alternatives to RRSP Loans

If an RRSP loan doesn’t fit your situation, you still have options:

• Automatic contributions: Set up pre-authorized deposits to your RRSP every payday.
• Use your TFSA: If you have TFSA funds, transfer them temporarily and rebuild after your refund.
• Start early next year: Avoid deadline panic by planning ahead with monthly contributions.

Check out our RRSP vs. TFSA comparison article to decide which account should come first in your savings plan.

How to Evaluate Your Situation

The best way to decide if an RRSP loan is worth it is to model the outcome. Tools like the Retirementize Income Calculator show how early RRSP contributions—even if borrowed—can grow over time and generate retirement income later.

Use scenarios: one where you borrow to contribute and one where you wait and save slowly. Seeing the difference in lifetime income often clarifies whether the loan makes sense.

RRSP Loan Strategy Example

Let’s compare two investors:

• Jamie: Takes a $10,000 RRSP loan at 6% for one year, earns a $3,000 tax refund, repays most of the loan, and keeps the investment growing at 6% annually.
• Alex: Saves $4,000 each year without borrowing.

After 20 years, Jamie’s RRSP is worth about $32,000 more—even after interest payments—thanks to earlier compounding.

Expert Tips for Borrowing Wisely

• Choose a short term—preferably one year or less.
• Use your tax refund to repay as soon as possible.
• Ensure your investments align with your risk tolerance.
• Compare loan rates; some banks offer special RRSP loan promos.

Always read the fine print, and consider speaking with a financial advisor before taking on any new loan.

Conclusion

RRSP loans can be a smart move if used responsibly—they let you maximize your contribution room, grab valuable tax refunds, and start compounding earlier. But they can also backfire if used recklessly or without a repayment plan. In short: borrow only when the math works in your favor.

To see how an RRSP loan might impact your retirement income, plug the numbers into the Retirementize calculator. It’s free, fast, and eye-opening.

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