Iceland Car Rental Tips: What to Know Before Driving in Iceland

Renting a car in Iceland sounds simple. Until it isn’t. Wrong car, wrong insurance, wrong assumptions, and suddenly that dream road trip turns into a very expensive lesson. 

These Iceland car rental tips come straight from Cars Iceland, a local company that has been doing this since 2013 and has seen every mistake in the book. We don’t write generic advice. We tell you what actually works here, on these roads, in this weather, with real vehicles and real policies. 

Read this before you book. Iceland is unpredictable enough. Your car rental should not be.

Is Renting a Car in Iceland the Right Choice for You?

Renting a car in Iceland is the smart move for anyone planning to actually see the country. Outside Reykjavík, public transport is rare, unreliable, or nonexistent. If you’re heading out on the Ring Road, driving the Westfjords, or carrying gear for kids or cameras, a rental isn’t optional. It’s essential. You decide when to leave, where to stop, and how far to go. 

That’s the freedom you’re paying for. If you’re only sticking to the city or joining pre-packaged tours, fine. Don’t rent. But if you want Iceland on your terms, start here. Cars Iceland gives you unlimited mileage, so you can drive all 1,300 kilometers of the Ring Road or more without penalty. 

Not sure what kind of car you need? Our local support team helps renters choose the right setup for their route and season. Renting a car in Iceland is about control. We make sure you’re ready for it.

When to Book a Rental Car in Iceland

Want to know how to rent a car in Iceland without getting burned? Start by booking early. If you're coming between June and August, lock in your vehicle 3 to 6 months ahead. That’s peak season. 

Wait too long, and you’ll get what’s left. May and September are better, but you should still book at least 1 to 3 months out. Winter travel gives you more options, but 4x4s still disappear fast, especially around holidays and Northern Lights season. Cars Iceland offers free date changes and cancellations, so there's no risk in planning ahead. Book direct and you’ll get the best price we offer.

Plus, you’ll unlock every add-on and feature available, from Wi-Fi hotspots to child seats. Figuring out how to rent a car in Iceland starts with one thing: timing. Get it right, and everything else falls into place. Wait too long, and you’ll pay for it.

Planning Your Route Before Choosing a Car

Iceland’s roads are not all the same. Some are smooth tarmac. Others are loose gravel. Then there are the F-roads. These are unpaved mountain routes, often closed outside summer, and only legal to drive with a 4x4. 

Planning to head into Þórsmörk, Askja, or anywhere in the Highlands? You’ll need ground clearance, four-wheel drive, and common sense. That’s where we come in. Cars Iceland has a real team, not just an FAQ page. 

Call us before your trip, and we’ll help you match the car to the route, not the other way around. We also offer tailored route planning tips for every season, so you don’t waste time or risk damaging the vehicle. Rain, snow, wind, and river conditions change fast here. 

Our regional guidance helps you stay ahead of it. If you’re serious about seeing the country properly, don’t guess your route. Let us help you plan it like a local who knows what’s coming.

Airport vs City Pickup: What Works Best in Iceland?

Should I rent a car in Iceland the moment I land, or wait until I’ve explored Reykjavík? Depends on your plan. If you’re heading straight out of town, airport pickup is faster; you can get your rental car right after landing. 

Cars Iceland offers a quick shuttle from Keflavík International to our nearby rental station. No taxi, no train, no time wasted. You get your keys, your route, and you're off. No young driver fees and no hidden fees either. What you see at booking is what you pay.

If you’re spending a couple of days in the city, go with Reykjavík pickup. Parking is simpler near hotels and guesthouses, and there’s no need to pay for a vehicle sitting unused. Cars Iceland makes both options flexible.

You can pick up at the airport and return in the city, or the other way around. No extra charges for different office pick-ups. We're built for travelers, not paperwork.

Choosing the Right Rental Car in Iceland

Picking the wrong car in Iceland is easy. Picking the right one takes two minutes and a little local advice. Here's what actually matters before you hit the road.

2WD vs 4x4: What You Actually Need

Not sure if you need a 4x4? Most people don’t. If you’re sticking to the Ring Road in summer, a 2WD will do the job just fine. That’s over 1,300 kilometers (800 miles) of paved road. No need to overpay. 

The Highlands, on the other hand, are a different story. F-roads are rough, steep, and often involve crossing streams. These routes legally require a 4x4, and for good reason. In winter, even the Ring Road can turn nasty. Snow, ice, and wind change everything. A 4x4 gives you more control and better clearance when conditions go south. 

One of the most common mistakes we see? Renting a 4x4 ‘just in case' and burning through your budget. Don’t guess. Ask. The Cars Iceland team will tell you what works for your route and when. 

Manual or Automatic Cars in Iceland

Can you rent a car in Iceland with an automatic transmission? Yes. Should you wait until the last minute to book one? No. Automatics are in high demand, especially from June to August. Most locals drive manual, so the national fleet leans that way. 

If you need an automatic, reserve it early or risk ending up with a car you can't drive. Cars Iceland offers both options, and we don’t play games with availability. You’ll see what’s actually in stock, not a mystery placeholder. 

Automatics are usually a bit more expensive and slightly less fuel efficient, but if you’re not comfortable with manual shifting, don’t gamble on Icelandic roads. The weather won’t care. If you’re confident with a manual, you’ll save a few thousand ISK and get better mileage. 

Space, Luggage, and Passenger Comfort

Most rental regrets in Iceland start with one thing: not enough space. It’s not just suitcases. It’s boots, jackets, backpacks, camera bags, and winter gear that takes up half your trunk. If you're traveling with more than two people or plan to be on the road for days, go bigger. 

Cars Iceland offers vehicle recommendations based on your group size and trip length, not guesswork. Families, photographers, and long-distance travelers tend to benefit from SUVs or larger models. They come with more legroom, more luggage space, and better visibility. One of our top Iceland car rental tips? 

Always upsize by one category. You’ll thank yourself when you're loading up in the rain or trying to find space for one last bag. Iceland isn’t a country where you want to feel packed in. Give yourself room to breathe, move, and actually enjoy the drive. 

What You Need to Rent a Car in Iceland

Before you hit the road, here’s what you actually need to rent a car in Iceland:

• Driver’s license - A valid license from your home country is required. If it's not in Latin script, bring an International Driving Permit (IDP) with it. Both documents must be presented at pickup.
• Minimum age - Drivers must be at least 20 years old for standard 2WD rentals. For 4x4 vehicles, the minimum is 23. These are legal requirements, not flexible guidelines.
• Credit card - A physical credit card in the main driver’s name is needed for the security deposit. Prepaid and virtual cards are not accepted.
• Documentation checklist - Cars Iceland provides a clear policy page outlining everything you need. No surprises. No missing papers.
• Adding a second driver - You can add extra drivers during booking or later through the Cars Iceland portal. Additional fees apply, but it’s easy and fast.

Car Rental Insurance in Iceland Explained

Insurance in Iceland is not something you figure out at the counter. It’s something you get right before the trip even starts. Here’s what’s covered, what’s not, and how to avoid the kind of damage you don’t want to explain to your bank.

Mandatory Insurance

Car insurance in Iceland starts with CDW, or Collision Damage Waiver. It’s included in every rental from Cars Iceland. You’re not paying extra for the basics. CDW covers damage to the body of the vehicle if something goes wrong, but it’s not a free pass. 

It doesn’t cover damage to the undercarriage, tires, windshield, headlights, or anything caused by water. That means river crossings, sea spray, or getting stuck in snow can leave you paying out of pocket.

Each rental comes with a deductible, also called self-risk. That’s the maximum you’ll pay if something happens. For most vehicles, it’s between 195,000 and 360,000 ISK (roughly 1,400 to 2,600 USD). You can lower this by adding extra coverage, but don’t ignore it. Too many people do.

Gravel, Sand, and Ash Protection

Gravel, sand, and ash protection exists for a reason. Iceland’s terrain will wreck your rental if you don’t take it seriously. One gust of wind on the South Coast and fine volcanic ash starts scraping every exposed panel. In the Eastfjords, even a short stretch of gravel road can leave your paint chipped and your windshield cracked. Standard insurance won’t cover any of it.

That’s why Cars Iceland offers these protections as optional bundle add-ons. They’re tailored to your route and the time of year. Driving to Vík in the summer? You’re in ash territory. Hitting unpaved roads past Egilsstaðir? Gravel risk jumps. These aren’t scare tactics. We’ve seen the bills.

Pick the coverage that fits your actual plan, not the one-size-fits-all version. If your trip includes coastal wind, loose terrain, or open highlands, sand and ash protection isn’t extra. It’s essential. Ask us if you’re not sure. We’ll tell you straight.

Credit Card Insurance: What Usually Isn’t Covered

A lot of people think their credit card covers everything. It doesn’t. Most credit card insurance is limited. If you’re renting a car in Iceland and relying only on your card, read the fine print first. Off-road driving? Not covered. Gravel chips, sandblasting, and wind damage when your door flies open? 

Also not covered. And no, F-roads count as off-road. Credit card policies often require a massive deposit and a long claims process that’s handled in another country, not locally. They rarely match the real risks Iceland throws at your vehicle. 

Local protection plans exist for a reason. They’re built for the roads and conditions here. Cars Iceland can tell you when your card coverage is fine and when it’s a bad gamble. We’ve seen both. If you’re not sure what your policy actually covers, ask us before you book

Mileage Limits and Fuel Costs in Iceland

Unlimited mileage means exactly that. With Cars Iceland, you can drive as far as you want without paying extra for every kilometer or mile. Ring Road? Go for it. Detours into the Westfjords? No problem. We don’t charge you for using the car like you’re supposed to.

Fuel prices in Iceland used to sting. Not anymore. As of January 2026, petrol costs around 183 to 203 ISK per liter, or roughly 1.46 to 1.62 USD. Diesel runs slightly higher at 205 to 221 ISK per liter, or about 1.63 to 1.76 USD. Still, both are down from last year’s spike, when diesel hit 320 ISK. That’s a massive drop, thanks to recent tax cuts. You can check the latest prices on gas here.

For longer routes, diesel is still more efficient. On a 1,300-kilometer (800-mile) Ring Road trip, that small price difference adds up. Not sure what type your rental takes? We’ll tell you before you even ask. 

Driving Rules and Road Conditions in Iceland

Driving in Iceland is not difficult, but it’s also not a free-for-all. The rules are strict, the roads are unpredictable, and the fines are real. Know what you’re dealing with before ahead of time.

Speed Limits and Speed Cameras

Speeding in Iceland isn’t just risky. It’s expensive. The Icelandic speed limits are simple, but the enforcement is brutal and silent. 

Stick to 50 km/h (31 mph) in towns, 90 km/h (56 mph) on paved rural roads, and 80 km/h (50 mph) on gravel. Trailer or camper? You’re capped at 80 km/h no matter what. Some neighborhoods drop to 30 km/h (19 mph). 

Blue advisory signs mark sharp curves, single-lane bridges, and blind hills. Take them seriously. Cameras are everywhere. Fixed, mobile, and average speed zones that track you over long stretches. Reykjavík, the Golden Circle, and Ring Road hotspots are full of them. 

Our cars include GPS warnings, but don’t count on them to save you. Go even slightly over, and you’ll pay. Do 41 km/h over the limit and you’re looking at a 650 USD fine.

Road Signs Tourists Should Know

Most road signs in Iceland follow the European system, but the meanings can still trip up tourists. Text is in Icelandic, visibility can drop fast, and in the middle of nowhere, signs are all you’ve got. Misread one, and you could damage the car, get fined, or end up reversing on a one-lane bridge.

Watch for red-bordered triangles. ‘Malbik endar’ means pavement ends and gravel begins. Drop your speed. Other icons to watch: sheep, strong wind, falling rocks, and single-lane bridges. 

Priority signs matter more here than they do back home. The upside-down red triangle means give way. Blue mandatory signs tell you what direction you must go, especially in roundabouts. Octagon? Full stop. Look out for blind crest warnings and one-lane bridge icons. Both show up fast, often in remote areas. 

Single-Lane Roads, Bridges, and Tunnels

Single-lane roads, bridges, and tunnels in Iceland are not the place to test your confidence behind the wheel. One bad call and you’re in reverse, on gravel, with a bus coming at you. These sections are common in the Westfjords and older parts of the Ring Road. Drive like you're not the only one on the road.

At one-lane bridges, whoever gets there first usually goes first. But don’t gamble. If there’s doubt, wait. If the sign shows a thick white arrow, you have priority. Thin red arrow? Let them through. In narrow road sections, use passing places properly. Pull in fully. Never make the other car reverse uphill or into a blind curve.

Slow to 50 km/h (31 mph) or less before entering. Sudden stops on gravel go wrong fast, especially in wind or rain. Vestfjarðagöng and other tunnels near Ísafjörður demand full focus. Older bridges still exist on Route 1. Respect them…

Navigation, GPS, and Internet While Driving

Google Maps works well in Iceland, but don’t count on it to save you in the middle of nowhere. Once you leave Reykjavík or major towns, data gets patchy. That’s why offline maps and a solid connection matter.

Online Google Maps gives you live rerouting, accurate pins, and reliable directions around the Ring Road and Golden Circle. Offline mode loses traffic updates and can miss smaller roads or storm closures. Apps like Maps.me help, but they’re not perfect. Dedicated GPS devices still work without data, but often lag behind on closures or conditions.

Cars Iceland offers WiFi hotspots and phone holders with rentals. Use them. Your own phone with Google Maps is usually better than outdated GPS screens. Siminn has the strongest rural coverage. Vodafone is average. Nova is cheap but unreliable outside cities.

Download offline maps before your trip. You’ll lose signal in the Highlands, Westfjords, and certain fjords. Don’t rely on luck. Plan ahead.

Parking Rules and Fees in Iceland

Reykjavík uses a color-coded zone system with strict enforcement, including cameras and automatic fines. Always pay or register your plate. P1 (red/pink) is the most expensive at 370–600 ISK/hour, limited to 3 hours. P2 and P4 charge 190-220 ISK/hour during weekdays and Saturdays. 

P3 starts cheaper and drops after 2 hours. Use or EasyPark apps to manage payment. Just enter your rental plate, select the zone, and you’re covered. EasyPark adds a service fee, but both are more convenient than meters.

Outside the capital, parking is usually free, especially at nature stops and small towns. Still, check signs. ‘No markings’ doesn’t mean free. Fagradalsfjall, for example, charges 1,000 ISK/day. Mistakes here are common. 

Tolls and Additional Driving Costs

Iceland doesn’t nickel and dime you on the road. There is only one toll tunnel in the entire country. Everything else, including bridges, roads, and detours, is free to drive. The exception is Vaðlaheiðargöng, just east of Akureyri.

It costs 2,152 ISK per trip for standard cars under 3.5 tons, which is about 15.50 USD. Heavier vehicles like large campervans pay more. There are no booths. You pay online at the tunnel.is within 24 hours before or after using your rental plate number.

 Skip it, and the rental company gets billed with extra fees. If you are heading from Akureyri to Mývatn and want to shave off 16 kilometers, it is worth it. Otherwise, take the old route for free. 

Summer vs Winter Driving in Iceland

Driving in Iceland is easy, especially during the summer. Roads are clear, F-roads open from late June, and the daylight lasts almost 24 hours in July. You can see more, go farther, and worry less. Rain and wind still linger, but you are not dealing with snow or black ice. 

Ring Road and Highland trips are fully possible. Expect traffic near hotspots and dust on gravel roads. Winter driving is a different game, though. From November through March, snow, ice, and low visibility dominate outside Reykjavík. 

Highland routes are closed. Even the Ring Road can shut down without notice. Daylight drops to 4 to 7 hours. Cars Iceland equips every vehicle with winter tires during this period. Always check safetravel.is and umferdin.is before driving. 

Before You Drive in Iceland: Essential 8-Point Checklist

Now that you know what the rules for driving in Iceland are, use this quick checklist to ensure a safe and prepared start to your Icelandic road trip.

1. Lights on, always: By law, headlights must be on 24/7, day and night, regardless of visibility.
2. Check tire tread & pressure: Ensure tires are suitable for current conditions. Studded or winter tires are legally required from November to mid-April. At Cars Iceland, we include them in the rental price.
3. Beware of wind gusts: When opening car doors, hold the door firmly to prevent wind from ripping it from its hinges. It may sound crazy, but it is a common and costly mistake.
4. Download offline maps: Cell service is unreliable in remote areas. Download your route on Google Maps before leaving Wi-Fi.
5. Consult Umferðin: Always check umferdin.is or call 1777 for real-time alerts on closures, weather hazards, and conditions.
6. Fuel or charge up: Never let your tank fall below half. Stations are sparse in the highlands and along parts of the Ring Road.
7. Plan your stops: Know where your next rest stop, campsite, or accommodation is. Distances between services can be long.
8. Photograph the vehicle: Take timestamped photos/videos of the entire rental car, inside and out, before you drive off to document its condition.

Common Mistakes to Avoid When Renting a Car in Iceland

Tourists make the same mistakes here year after year. Use these as your checklist:

• Wrong car, wrong route -Booking a 2WD for Highland or gravel travel voids your insurance and gets you stuck. Always take a 4x4 for F-roads or the Westfjords.
• Skipping proper insurance - CDW is not enough. Gravel chips, wind-blown doors, and ash damage are common and not covered. Add the full package, especially SADW.
• Booking too late - Summer and eclipse dates get booked out fast. Automatics go first. Prices spike. Early booking saves you a headache.
• Fuel mistakes-  Never let the tank drop below half in rural regions. Refill before returning. Cars Iceland charges standard pump prices plus an extra service fee.
• Careless behavior - Rushing bridges, ignoring signs, or opening doors into the wind racks up costs. Always check safetravel.is before driving.
• No documentation - Inspect your rental, photograph everything, and report issues immediately.
• Parking fines - Reykjavík zones are strict. Use the apps. No plate registration means automatic tickets.
• Read the fine print: this way you know the conditions, administrative fees, and other charges that may come with fines, parking tickets, certain damages, and, of course, the coverage of your insurance policy.
• Headlights on, always - we said this before, but it is essential to remember that Iceland requires driving lights to be on whenever the car is in use, even in daylight.
• Two-lane roundabouts - The inner lane has priority when exiting. If you’re in the outer lane, be ready to yield.
• Alcohol limit is extremely low -Iceland’s legal BAC limit is 0.02%, so practically “don’t drink if you drive.”

Flat Tire, Breakdown, or Accident? Here's Your Iceland Action Plan

Driving in Iceland is an adventure, but vehicle issues can happen. Stay calm and follow these steps to ensure your safety and resolve the situation smoothly.

Step 1: Immediate Safety First

1. Pull Over Safely: Signal carefully and move your vehicle as far off the road as possible onto a solid, flat surface.
2. Make Yourself Seen: Turn on your hazard lights. If you have a reflective warning triangle, place it 30-50 meters behind your vehicle.
3. Stay Safe: Exit the vehicle from the side away from traffic and stand at a safe distance.

Step 2: Assess and Make the Right Call

• If there is danger, injuries, or you are blocking traffic, call 112, Iceland's emergency number.
• For a breakdown or flat tire without immediate danger, contact your rental company's 24/7 assistance number directly.

Step 3: Do NOT Attempt Repairs

Do not attempt any repairs yourself. Unauthorized work can void your insurance, create safety risks, and lead to extra charges. Wait for the approved assistance from Cars Iceland.

Step 4: Gather Information for Your Rental Company

While waiting, document the incident:

• Photos: Take clear pictures of the vehicle, any damage, the surroundings, and road conditions.
• Location: Note your exact location. Use the app 112 Iceland to send your GPS coordinates directly to emergency services if needed.
• Details: Briefly write down what happened and the time.

Step 5: Stay Informed

Before continuing your journey, check the latest road conditions:

• Website: Visit umferdin.is/en for official traffic updates and closures.
• Phone: Call 1777 for the Icelandic Road Administration's recorded info line.
• Weather: Always cross-check with vedur.is for forecasts.

Remember: Your safety and correct procedure are the top priorities. Knowing these steps will help you handle any situation with confidence.

Returning Your Rental Car: What to Check

If you’re wondering where to rent a car in Iceland, the answer matters less than how you return it. Even the best trip can end with extra charges if you skip the basics. Use this checklist before you hand over the keys.

Pre-Return Checklist

• Match fuel level to what was noted at pickup. Usually full. Refill at N1 or Orkan near Keflavík Airport
• Remove trash, personal items, food, and any leftover camper gear
• Clean excess dirt or mud, especially after hikes or gravel roads
• Take clear photos of the mileage, fuel gauge, exterior, and interior
• Return on time. Cars Iceland offers a 30-minute grace period. Miss it, and you pay for another day
  
  

Damage Inspection

• Walk around the car in daylight. Look for new scratches, dents, or windshield chips
• Check tires and undercarriage if you used F-roads. Bent antennas and gravel damage are common
• Compare with pickup photos and original damage report
  
  

Final Steps

• Lock the vehicle and drop keys in the after-hours box if closed
• Confirm tolls like Vaðlaheiðargöng were paid online
• Cars Iceland often offers a FREE shuttle to KEF. Ask if you need it

How to Save Money on Your Iceland Car Rental

Here’s how to stop overpaying for your rental before you even land. Use these Iceland car rental tips and keep more of your budget for actual travel.

Booking Strategies

• Book 3 to 6 months in advance, especially for the summer or August 2026 eclipse dates
• Choose longer rentals (7+ days) to drop the daily rate
• Use discount codes or seasonal offers directly from Cars Iceland
• Skip overpriced GPS units and use your phone with a WiFi hotspot from Cars Iceland
• Avoid duplicate insurance if your credit card already covers CDW
• Compare the total price with full insurance, not just the base rate

Vehicle and Fuel Savings

• Match the car to your route. A 2WD handles the Ring Road and costs 30 to 50 percent less than a 4x4
• Choose diesel or hybrids for long distances. Save about 20 USD per 1,000 kilometers
• Refuel at Costco or in Reykjavík for lower prices
• Drive steadily at 80 km/h for better fuel efficiency on longer routes

 

Real Iceland Car Rental Tips You’ll Wish You Knew Sooner

Looking for the kind of Iceland car rental tips that actually save you time, money, and hassle? Start here:

• Book as early as possible, especially if you're traveling in summer or during high-demand periods like the 2026 eclipse
• Choose a vehicle that matches your route and group size, not just what looks cheapest
• Always check safetravel.is and road.is before setting out, no matter the season
• Opt for full insurance coverage, especially gravel, sand, and wind protection
• Use parking apps in Reykjavík to avoid automated fines
• Return the car clean, refueled, and on time to dodge extra charges
• Take photos at pickup and drop-off to avoid disputes
• Skip the add-on GPS units and use your phone with Cars Iceland’s WiFi hotspot

Want a car that’s ready for the roads you’re actually driving? Check out our fleet and get it sorted today.