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Car rental in Iceland – what you need to know

Renting a car in Iceland will give you more flexibility than if you travel by public transport or on an organised tour. You’ll be able to stop when and where you want, you won’t be waiting for others and you can travel much more independently. You can create your own itinerary (and change it if circumstances dictate) and explore at your own pace.

With all that said, there are many things to be aware of when renting a car in Iceland. This guide covers a number of issues you’ll want to consider.

Plan ahead!

Aside from the blip of the pandemic which affected travel the world over, Iceland has been steadily soaring in popularity. Foreign overnight visitors more than tripled from 672,773 in 2012 to more than 2.3 million in 2018. In 2022, it’s expected to be over 1.6 million and may well significantly exceed that figure given the international interest generated by the most recent volcanic eruption in the country.

In short, demand for tourist services remains high and it pays to plan ahead, especially with something like car hire, which tends to be booked some way in advance, if you want to get your first choice of vehicle. Leave it too late and demand may mean you’ll find yourself paying a premium for an inferior car.

Driving license

Driving licenses issued in the USA, Canada, the European Economic Area (EEA), Australia and New Zealand are valid for use in Iceland. If your driving license is issued from somewhere else, then you’ll need to check that it has a license number, is printed in Latin characters (Roman alphabet), includes your photograph and has not expired.

If you are unable to fulfil all of these requirements, you can apply for an International Driving Permit which is a travel document regulated by the United Nations. It’s essentially a translation of your domestic driving license so bring that along with you also. If in doubt, check with your car rental provider that you have the necessary documentation.

If you’re travelling with another driver and plan on covering long distances, it might be worth considering adding an additional driver. If you do this, you’ll need an appropriate license for that person, too, of course.

Remember also that, although you can drive from 17 years of age in Iceland, you must be at least 20 years old to rent a car in the country.

Type of car

There are a number of things to consider when choosing what car to rent. It goes without saying that you’ll want enough space for yourself, any passengers and any luggage. But for Iceland you also really need to be thinking about where you’ll be exploring and at what time of year.

A 4×4 is a popular option but small or medium cars may suffice if all you plan to do is travel around Reykjavik. For Iceland’s F-roads (mountain or highland roads that are not regularly maintained), a 4×4 vehicle is essential, whatever the time of year, and recommended year-round for certain areas such as the West Fjords or northern regions.

Rental cost

The cost of your car rental will depend on a number of factors: the type of vehicle, when you book, the time of year you are booking for, the duration of your hire period and any extras you happen to choose. Booking in advance will likely save you some money whilst booking a vehicle with automatic transmission will typically cost you around 10% more than the equivalent car with a manual transmission. July and August is peak season in Iceland so renting a car during this period will be more expensive.

A Hyundai I10 from Icerental 4×4 can cost you as little as 9,000 Icelandic krona per day (around 64 USD, 55 GBP or 64 euros at current exchange rates), whilst a Mercedes Benz Vito (that can carry up to 9 passengers and is allowed on some F-roads) with platinum protection, an additional driver, on-board WiFi and a roof box, for a week in peak season but booked in advance, will cost you over 400,000 krona (around 2,800 USD, 2,400 GBP or 2,800 euros at current exchange rates).


Make sure your car comes with all the insurance cover you’d like. Third party liability (TPL) and collision damage waiver (CDW) insurance are a must and should be considered as the very minimum cover. Bear in mind that driving in Iceland is unlike driving in other countries, and the roads and landscape present some additional risks that you might like to cover for added peace of mind.

In particular, you might like to consider insuring against damage caused by sand and ash, as well as gravel protection. At any time of the year, but particularly in the period from February to April, strong winds can throw up sand and ash which can cause damage to your rental car, expecially on the south coast where there are vast plains covered in debris. Similarly, with less than half of Iceland’s 8,000 miles of road being paved, it’s not uncommon for loose stones to strike your vehicle, however carefully you drive.

Insuring for damage incurred on highland roads – for example, water damage from river crossings – is also worth looking at if you plan on driving any of Iceland’s F-roads. Theft insurance is another consideration, although thankfully thefts in Iceland are uncommon. Whatever level of cover you choose, it is important to check the terms of your policy so that you understand your agreement and there are no nasty surprises.


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Some final tips

When you rent a car, you should be given a piece of paper highlighting any existing damage. Before you depart, make sure this tallies witn the car you’ve been given and, if you see any dints or scrapes that have not been recorded, speak to the rental company before you drive away. Check the windscreen and tyres (including the spare!), and make sure that you’re driving away with a full tank of fuel since that’s how you’ll be expected to return it. A useful tip is to take pictures of your car, or even to shoot a short video of it, before you drive away.

It’s also important not to lose your rental agreement. It will tell you what action to take if you have a problem with your car, and will probably include contact details for a breakdown assistance service should you need one.

Check the small print, too. Are there any extra costs such as airport pick-up charges, and one-way rental fees or mileage fees? I would avoid rentals that limit your mileage as the distances in Iceland can be significant, and the price difference for unlimited mileage is often negligible.

Finally, leave plenty of time when dropping the car back to the rental company. They’ll need to check the car over and provide you with a final statement. They may also need to provide you with a shuttle service to Keflavik airport as some of the rental companies are a short drive away. And there may be lots of other people returning vehicles at the same time. Don’t spoil your holiday by not allowing yourself adequate time to return your car and catch your flight.

See our top tips for driving in Iceland also!

Planning a trip to Iceland yourself? You can watch a video from our trip to Iceland here:

YouTube video

Disclosure: This post is sponsored by Icerental 4×4. Our trip to Iceland was also supported by Helly Hansen.

Paul Johnson

Paul Johnson is Editor of A Luxury Travel Blog and has worked in the travel industry for more than 30 years. He is Winner of the Innovations in Travel ‘Best Travel Influencer’ Award from WIRED magazine. In addition to other awards, the blog has also been voted “one of the world’s best travel blogs” and “best for luxury” by The Daily Telegraph.

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  1. I used to think that car rental is car rental, renting a car is pretty much the same all over the world. Unfortunately, I’ve learned the hard way that it isn’t. Thanks for this. I’ll certainly remember it if my travels take me to Iceland.

    1. Hi Joe… yes, you would think so, but most definitely not in Iceland where car choice is possibly more important than ever and the road conditions and hazards potentially very different to what you might have previously experienced.

  2. Car hire and car insurance are always at the bottom of our to do list when organising our holidays. After reading this post it’s probably time that we moved them up the list.

    One year my husband had completely forgotten to book a car and we had to do it at the airport. That was both a very costly and time-consuming experience. The last thing that you want after a long flight.

    1. I think for Iceland in particular, it’s a good idea to make it one of the first things you plan. There is limited inventory and rapidly-rising demand as tourism increases. Sorting your car hire early for Iceland usually means better prices and a greater choice.

  3. When we did Iceland we made the decision to book a 4 x 4. It meant that our itinerary wasn’t limited by what our vehicle could do.

    A couple of times we got recommendations along the way from other tourists which changed our plans and we were glad that we had the option to drive on some of the tougher roads.

    1. Hi Alan – yes, unless our only intention was to go to Reykjavik and do nothing else (which would seem a shame on a trip to Iceland when there is so much to see!), I would hire a 4×4 every time…

    2. When we went to Iceland we didn’t spend any time in Reykjavik at all. There really is far more to Iceland than towns and cities. Get a car and hit the road to see what Iceland’s really all about.

  4. Iceland ain’t the most car friendly terrain on the planet so I think that we’ve got to expect a few differences when it comes to hiring a car.

    1. Exactly, Piers. There are a number of additional considerations (as outlined above) that make hiring a car in Iceland very different to anywhere else in Europe.

  5. I can assure you that it’s not just Iceland that is different from the norm when it comes to car rental and insurance. This is a very interesting post which could easily be followed up on other countries as well.

    1. I’m sure you are probably right, Tom, although I think Iceland is a good example of how there can be many differences to what you might normally expect. If anyone reading believe car rental is different in their country, too, we’d be interested in hearing from them and possibly doing a blog post on that also!

  6. It’s always worth adding an extra driver to the insurance.
    You never know when you’re going to feel tired or suffer from a headache.
    I get fed-up with driving all the time because you can’t really concentrate on the views and it’s nice to have a stint as a passenger for a change.
    Some days we even get an informal driving rota going.

  7. The F roads sound interesting. I’m getting this picture of a Top Gear presenter bouncing along and hitting his head on the car roof after every 2nd pothole.

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