Renting A Car In Iceland, Your Ultimate Driving Guide
There’s a reason road-tripping around Iceland has become so popular. With glaciers, volcanoes, hot springs and waterfalls all packed into one stunning island, it’s ideal for adventurers escaping for a long weekend or using up a few days of annual leave.
On my first visit, I was determined to make every hour count without wasting time on crowded tours or getting boxed into someone else’s schedule. Renting a car in Iceland gave me total freedom to explore hidden gems, pull over for spontaneous photos and soak in the epic landscapes at my own pace. But I didn’t expect the gravel roads to be so harsh.
Iceland isn’t your average road trip. Between unpredictable weather and unique rental rules, there’s a lot to navigate, especially with limited time. After renting cars in 10 European countries (many on quick trips just like this one), I’ve learned exactly what to look out for (like hidden fees) and what to avoid.
In this guide, I’ll walk you through everything you need to know about choosing the right vehicle and rental car company, step by step. From the insurance options that actually matter to the most useful driving tips for short stays, you’ll get practical advice for a stress-free trip.
Renting Your Car
So your flights and accommodation are booked, and next you need to arrange your Iceland car rental. Here’s how to get started.
When to Book Your Car Rental
Cars get snapped up quickly in high season. I’ve learned to book at least 3 to 4 months ahead for summer trips. Once I left it too late and had to pay nearly double for a small car that wasn’t even my first choice.
Choose the Right Vehicle for Iceland’s Road Types
Iceland’s roads and available cars vary massively, and the car you need really depends on where you’re planning to drive.
My top tip? Don’t just choose what’s going to look cute on your Instagram profile. That adorable little Fiat 500 isn’t going to serve you well on Iceland’s F-roads. What are F-roads roads, you say? Let me explain!
Paved Roads (Route 1): This is the main ring road that loops around the island, and the Golden Circle road is this type too. These are mostly paved and well maintained roads, so small cars are fine if you’re sticking only to Reykjavik and these routes.
Gravel Roads (F-roads): These are mostly mountain roads, which are only open in summer and only suitable for 4×4 vehicles. Driving on them in a regular car is illegal and dangerous.
Alternatively, in summer a campervan is a great budget-friendly option that doubles as your accommodation. Just remember, wild camping isn’t allowed everywhere so plan campsite stops in advance.
Consider Vehicle Specifications
There are a few other key things to consider when renting a car in Iceland, to make your journeys easier. So I recommend adjusting the filters on your search.
Automatic vs Manual: I always choose automatic transmission, then changing gear becomes one less thing for me to juggle when driving an unfamiliar car on unfamiliar roads.
Fuel Type: Go for petrol or diesel. There are few electric vehicle charging points and their batteries drain too fast in icy temperatures.
Drive Type: Trust me, get a four-wheel-drive (4WD), especially if you’re visiting in winter or driving on F-roads. You don’t want to find yourself stuck and your wheels skidding while trying to drive out of a car park.
If you’re lucky enough to be under 25 (I wish I still was!), check there are no age restrictions on the vehicle you wish to rent.
Select a Reputable Rental Company
Don’t just go for the cheapest company on Google or comparison websites when renting a car in Iceland, or you risk receiving an unsuitable vehicle or being hit with additional unexpected charges. Use Trust Pilot to read recent reviews about customer service and car condition and compare rental policies, not just prices.
Also consider local rental firms. I once saved over £600 by using Google Translate to rent from a Parisian car hire firm that was a short taxi ride away from the airport.
I book my own car rentals through Paapm Paapm. While the site looks quite new and somewhat basic, I found it has more filters and better signposting, and it’s super easy to compare providers and lock in a great deal with a local car hire firm.
The site also warns you if the rental company isn’t highly rated, or if the vehicle has been grouped incorrectly to help you avoid issues later. Better still, once you’ve completed your reservation, Paapm Paapm can continue to monitor prices and alert you if you can switch to any better deals if you forward the confirmation email to travelmore@paapmpaapm.com (this dedicated email address lets them know I referred you).
Understand Insurance Options
Rental car companies will always try and convince you to buy their highest level of insurance – at an inflated price, of course. I get the hard sell every time I rent a car, and I hate it.
All car rentals come with a basic level of insurance, known as Collision Damage Waiver (CDW). It will likely have a high excess. My highest yet has been £4,000. Ouch!
Car hire firms will try and upsell you to Super CDW, and they will try HARD (and occasionally add it without your knowledge or consent – I’m looking at you Goldcar) . This costs more, but reduces the excess you’ll pay for damage to the vehicle.
When hiring a car, I usually take the basic CDW and use a credit card to cover the deposit. Then I use a separate Excess Insurance policy, which refunds the excess I pay if there’s any damage. Do this if you want to keep costs to a minimum and don’t mind a little extra work.
Whatever insurance you take, always check it includes protection for damage caused by gravel, sand, volcanic ash and wind. Trust me, even in summer these can easily damage the paintwork.
Driver Age
If you’re under 25 (you lucky thing!) or over 65, you may find you don’t have as many vehicles and car rental companies to choose from. And the price will likely be higher. Shop around and check you’ve entered your age correctly when searching to avoid disappointment.
Additional Drivers
Most car rental companies will allow you to add a second (or more) driver, but the cost will vary. Although, this isn’t always clearly advertised upfront. I recently had to contact a company directly to find out, and the fee was almost as much as the daily rental price.
But sharing the driving definitely makes those long drives easier, especially if the weather or visibility is bad. It’s easy to become tired or fatigued.
My boyfriend likes to drive when we hire a car abroad, but I always add myself as a second driver in case he wants a break (or an alcoholic drink!) or doesn’t feel well.
Check What’s Included
Before buying car rental, it’s important to consider some logistics. Because sometimes, things don’t go to plan.
For example, if your flight is delayed and you land outside of the car rental office opening hours, can you still collect your vehicle? Or would you face an additional fee or even termination of your rental agreement? Also check the process for returning the vehicle, especially if you fly home very early or very late.
And search for the car rental location. Finding a desk in the terminal building is so much easier after a long flight than having to locate their shuttle service to take you to their office. That’s happened to me, and I instantly regretted my choice while my boyfriend gave me total side-eye!
If you can’t find an answer on the company’s website, drop them an email or contact them via social media before booking.
Check What’s Required
Before committing to renting a car in Iceland, ask the company what type of driving licence, ID and credit card they accept.
I’ve had issues before because my American Express credit card wasn’t accepted at the car rental counter. I should have checked ahead, but didn’t. I had my Mastercard with me as a back-up, but the credit limit wasn’t high enough, so I had to buy their expensive Super CDW insurance. I’d blown the budget before I’d even left the airport!
Since Brexit, more car rental companies are insisting that drivers provide an International Driving Permit (IDP) and I’ve experienced this myself. If you drive abroad regularly, or plan to, it’s worth having one.
An IDP simply acts as a translation of your full driving licence – it’s not a replacement, so you need to carry and show both if required.
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Avoid Hidden Fees
Watch for the small print – rental companies often add extra charges for excess mileage, additional drivers, late returns and cleaning.
You’ll likely also be charged a fuel deposit, and be asked to return the tank full (or at the same level, if it’s not full).
So check the rental terms to avoid surprises and don’t assume last-minute additions won’t be added. On a recent car rental in Montenegro I was shocked to find I’d need to pay a mandatory cleaning fee. That cheap rental price suddenly wasn’t so competitive!
Pack Useful Driving Accessories
Before you fly, organise and pack your car hire reservation paperwork, proof of insurance, DVLA share code, driving licence, International Driving Permit and credit card.
I also find it handy to also bring a windscreen phone mount and cables to help with navigation, and download offline maps on Google Maps before travelling. I’ve failed to do this before, then driven 15km in the wrong direction because I lost data signal. I don’t recommend that!
Check out my full Iceland winter packing list post to help you prepare for your trip, or see all my recommended items in my Amazon storefront.
At the Rental Car Counter
You’re tired after your flight, and you just want to get going to your hotel or activity. I hear you. But it’s important to run through a few important details when dealing with the rental paperwork.
Firstly, check the car rental agreement aligns with what you booked online. Make sure you know what you are being charged for, and check the final total(s) before signing and making payment. Don’t be afraid to question a fee you don’t recognise. When collecting our last hire car, the assistant was not clear and I thought we were paying one charge but we actually paid two. Plus we ended up paying for an insurance upgrade that we had specifically declined.
Listen carefully to key information and instructions on driving and returning the vehicle, and make sure you know what to do and who to contact in the event on accident or breakdown.
Inspect & Pick Up Your Rental Car
Before you set off on your Iceland self-drive in your hire car, check off the following actions to save hassle and stay safe:
- Check the car carefully (inside and out) and ensure all existing damage and the fuel level is accurately documented before you sign any paperwork
- Take time-stamped photos and videos all around the car and of the dashboard – check and capture the fuel level and mileage
- Don’t leave until you have a damage report signed by both parties
- Take a photo of the registration number/licence plate – you’ll need this to pay for parking at some self-service machines
- Keep your car rental documents safe, and keep key contacts handy in case of any issues
- Check which side your fuel cap is on – this will come in handy later!
- Take a few minutes to familiarise yourself with the vehicle controls – check where the controls for the wipers, headlights and hazard lights are located
- Connect your phone to the vehicle’s bluetooth or Car Play for music and maps
Driving In Iceland
So you’ve got your car and you’re ready to begin your Iceland self-drive itinerary. Yay!
But before you drive off thinking “hey, I’ve done this before, I’ll be fine”, stop and take a moment. Because driving in Iceland is very different. Here’s what you need to know about driving in Iceland lawfully and safely.
Abide By Key Driving Laws
Driving in Iceland is safe, but strict. Remember to always drive with seatbelts and headlights on – it’s illegal not to. And stick to the speed limits (90 km/h on paved roads, 80km/h on gravel.
Driving in Iceland is on the right-hand side of the road, and roundabouts are taken counter-clockwise. Once I got used to this, I loved navigating the clear, open roads while taking in the stunning scenery.
Road signs are generally easy to understand from the pictures used, but it doesn’t hurt to brush up on your knowledge first. Because I legit didn’t know the difference between mandatory and advisory speed signs, and couldn’t work out why I had so many drivers overtake me!
Fun fact: Iceland has one of the world’s lowest road fatality rates, as detailed by the European Road Safety Observatory.
Navigate Icelandic Conditions
The weather can change in minutes in Iceland, and that wind can be fierce! I almost lost a car door because I opened it without having a firm grip! Disaster narrowly averted!
Keep a close check on vedur.is and edit.road.is before setting off and throughout the day for weather updates and alerts.
If visibility is low, look for the yellow posts that mark the edges of the road surface and use them to guide you.
Fuelling Up in Iceland
Petrol stations are few and far between in rural Iceland, so always aim to keep your fuel tank as close to full as you can. If you passed one, and your fuel tank is less than half full, you better be U-turning that car right around!
Most stations have pay-at-the-pump machines and are generally unmanned. So don’t sit and wait for service – believe me, that gets a bit awkward!
Tolls
Some roads – such as the Vaðlaheiðar tunnel – have tolls and the fee has to be paid online within 3 hours. If you forget, your car hire firm will likely add the roll plus an administration fee to your rental charges.
The same is true for car parks, including those at Pingvellir and Skaftafell national parks. These can be paid at a machine on site, and payment must be made before exiting. Make sure you note the car’s registration plate number, so you don’t have to walk back and forth (yep, like I did!).
In Case of Collision
II haven’t had a collision in a hire car (touch wood!), but I’ve had several during my years of driving back home. I also have 14 years experience working for a car insurance company, so I know very well what to do in an accident.
Most importantly, stay calm. Check everyone involved is ok, and move to a safe location if possible. If anyone is injured, the accident is serious or there’s a dispute about fault then dial 112 and get an official police report.
Document everything by taking photos of the damage, the scene and vehicles involved, gather witness details and swap insurance information with those involved.
Finally, notify your car rental company immediately and complete their accident form. Ask for receipts and pass these to your excess cover provider (if applicable).
Returning Your Hire Car
When it’s time to return your car rental, there are a few things you should do to ensure the process goes smoothly.
First of all, check the fuel tank is full, or at the same level as when you collected it, then remove any rubbish and personal belongings. Also, don’t forget to disconnect your phone from the vehicle’s bluetooth or Car Play connection.
Next, take photos and film around the vehicle again, including the fuel level and mileage, and if possible get signed proof the vehicle has been returned in the same condition. This is your safety net if the rental company later tries to claim for damage that you didn’t cause. I’ve had this happen once, but the company immediately withdrew the invoice when I was able to show a timestamped photo. Car rental company nil, Natalie 1!
After You Return Home
Even though you’ve returned the car and left the country, there are still a couple of things to follow up on to ensure you don’t end up out of pocket.
Check your deposit (and fuel deposit if taken) are returned to your credit card. This can take up to 30 days – like my last Iceland car rental did. Then keep an eye out for any unexpected charges or fees being automatically deducted. This shouldn’t happen, but just in case.
Finally, consider taking a few moments to leave a review for the car rental company. Good or bad, your experience can help other travellers in making the right choice.
Do I need an international driving permit in Iceland?
If you have a full UK or EU licence, you don’t usually need one. Most other licences in English are accepted too. It’s advisable to get an International Drivers Permit (IDP) just in case though, or if you drive abroad often.
Is it expensive to rent a car in Iceland?
Yes, rentals can be pricier than in mainland Europe. But we found we saved a lot of money on tours by hiring a car and exploring at our own pace.
What type of car should I rent?
In summer, a small car is fine for main roads. In winter or if you plan to drive F-roads, hire a 4×4.
Do I need to book in advance?
Absolutely. Cars book up fast, especially in summer. Reserve early to get the best choice and price.
Are Iceland’s roads safe to drive?
Yes, but conditions can change quickly. Check weather and road updates daily. Drive slower than you would at home.
Do I need extra insurance?
Yes, consider gravel, sand and ash protection. These damages aren’t usually covered by standard insurance.
What side of the road do Icelanders drive on?
On the right-hand side, like most of Europe.
What are petrol prices like in Iceland?
Fuel can be expensive. Fill up before remote areas, as petrol stations can be few and far between.
Is parking easy in Reykjavik?
Yes, but most central spaces are paid. Use parking apps like EasyPark or Parka, or pay machines for convenience.
Hiring a car in Iceland gives you unbeatable freedom to explore and enjoy those bucket list experiences on your own terms. Just pick the right vehicle, understand the rules and get the right insurance so you’re covered for anything unexpected.
Ready to hit the road and begin your awesome Iceland self-drive? Check out this post for more top tips and budget hacks to help make the most of your short trip.
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