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Iceland Car Rental in Iceland: The Complete Guide

Car Rental in Iceland: The Complete Guide

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This post is also available in: Nederlands

Iceland is the ultimate destination for a road trip. The varying landscapes, the easy to bridge distances between highlights and the quiet roads are the perfect mix. Although it is possible to bring your own car to Iceland with the ferry from Denmark, most people choose to rent a car in Iceland.

By flying to Iceland and rent a car there, you can spend all your valuable time in the country you want to explore. Besides, driving in Iceland isn’t without risks for the car, so you might prefer to use a rental car to drive around in this country!

Iceland rental car

What type of car do you need in Iceland?

Iceland is a country of extremes. Extreme weather conditions, extremely rough nature and extreme road conditions. Luckily the extreme road conditions go two ways: extremely good, with a very good paved surface. The other roads are extremely challenging, with river crossings and off-road driving.

TIP: For the best rental car deals, check They compare many different providers and always come up with the best prices.

When do you need a 2WD?

A 2WD car is a perfect car to rent if you stay on the paved roads in Iceland. The Ring Road #1 is the only highway in Iceland and totally paved. It will lead you around the whole country and to most of the highlights.

If it is your first time exploring Iceland and you have limited time (up to 8 days), a 2WD is all you are going to need. Every now and then, you might have to drive on unpaved roads, but if you limit your speed and drive with caution this is perfectly doable. This will only be short distances to reach one of the many highlights that are situated around the Ring Road.

2WD Car Rental Iceland

2WD Car Rental Iceland

When do you need 4WD?

A 4WD car is a car to rent when you want to explore the highlands of Iceland. Think of the Askja area, a big part of the Westfjords and the highlands in the West.

These parts of Iceland have extremely poor roads, which can barely be called roads. A better word for it would be ‘tracks‘. These tracks have a very soft surface, are sometimes sandy and are interrupted several times by rivers that are formed by melting glacier water.

So, if you have more time to spend in Iceland and want to take your exploration to the next level, a 4WD is the car you need.

4WD Iceland

4WD Iceland Car Rental


Camper rental is more and more popular in Iceland. It allows you to sleep on campsites and save on accommodation costs. Free camping is not longer allowed in Iceland.

A camper is most often a 2WD car, so the same indications apply as described above.

Insurance for your rental car

When you rent a car in Iceland, it always comes with a Collision Damage Waiver (CDW). This is no insurance, but a maximum amount they can charge you for if there is any damage to the car when you return it. This amount can go up to US$3.000.

There are a couple of options if you want to insure yourself better for damages.

Super CDW (SCDW)

Raise your CDW and your maximum charges for when there is damage found on the car will drop. The maximum amount you can be charged for damage with SCDW varies a lot per company. It can be as low as US$350 to as high as US$1.500.

Check this in advance, before you decide to pay extra for SCDW. Additional costs vary between US$7 and US$15 per day.

Gravel road in Iceland

Gravel Insurance

When you choose to pay extra for the gravel insurance, you won’t be charged for damages at the front of the car that is caused by little stones and pebbles on unpaved roads. Most likely such damage will be caused by the car that drives in front of you and kicks up the gravel.

Most car rental companies offer this insurance for US$5 per day. Other’s include it in their SCDW or higher packages, like Grand CDW or Premium CDW. Always check your coverage with your car rental company.

Sand And Ash Protection (SAAP)

Sand and ash damage is one of the most expensive damages that can happen to your car. Such damage is not included in any of the CDW packages and you can be charged up to US$5.000 or more.

The costs for this additional insurance vary between US$7 and US$15 per day.

Costs Iceland

Driving in Iceland

Driving in Iceland is generally quite easy and safe. There are just some things that might be different than in your home country. Below I discuss some things you really need to know before you start driving in Iceland.

Car Rental Iceland

Car Rental Iceland

Traffic rules

Most traffic rules in Iceland are very obvious. There is just one rule that you need to know to avoid a fine: Your car lights need to be turned on 24/7! If you get caught without your lights on, you will get fined.

This is because the weather conditions can change quickly and days can be dark. Good thing is, that most rental cars are equipped with automatic lights. They turn on as soon as you start the engine. But make sure you check this!

Some other traffic rules are:

  • Cars on the highway have priority
  • Sheep and horses have priority
  • Speed limits are marked clearly along the road, but in general, you are allowed to drive 90km/h on the Ring Road and 60 km/h in Reykjavik.
  • You have to stop in front of a red or orange traffic light
  • You have to let pedestrians cross on a pedestrian crossing
  • And one more time, just so you don’t forget: You have to turn your car lights on 24/7

Car Rental Iceland Signs

Road Iceland Car Rental

Traffic Signs Iceland Car Rental


Parking is only allowed in designated areas. This is very important because this means you can’t just stop somewhere along the road to take a photo. It is a very strict rule in Iceland because if you do decide to stop somewhere on the roadside, you destroy nature.

Obviously you can also not stop in the middle of the road to take a picture. There are barely any trees in Iceland. So, if you have a beautiful view from your car, just keep on driving until you see a safe place to stop and take a picture from there. The view will most likely be the same!

Furthermore, parking is free in most places in Iceland. Just check it when you park in Reykjavik city center. Also, the Icelandic government asks a small paying fee at more and more attractions around Iceland. This money is used to maintain the beautiful nature.


Fuel taxes are quite high in Iceland and that reflects in the fuel prices. Although prices fluctuate from day to day, count on US$1.85 per liter. Sometimes it is 10-15 cents cheaper, sometimes it is 10-15 cents more expensive.

You can find petrol stations all around the Ring Road #1. The further away from Reykjavik, the bigger the distances between them. The distance to the next petrol station is indicated at the previous petrol station. Make sure you fill up your tank on time.

If you go into the highlands: make sure you start your trip with a full tank. There are absolutely no petrol stations in these areas.


Sheeps on icelandic road

As you might know, wild horses do live in Iceland. Although you won’t see them very often around the roads, you have to be aware of them. In the highlands even more!

There are also a lot of sheep. These sheep belong to farmers, but in Iceland they let their sheep walk freely in nature. Once a year they gather all their sheep back to the farms to see which sheep belong to which farmer. At the end of the process, they know how many sheep they have.

So, although sheep might not sound like wild animals, you have to be aware of them. They can appear out of nothing and standstill in the middle of the highway. If you see something suspicious at the horizon, slow down and let the sheep pass by.


I have mentioned it before. The weather in Iceland is extreme and very unpredictable. During summer you can have snow and during winter you can have a beautiful clear blue sky. The Icelandic weather is also very known for its rapid changes. Within minutes it can totally turn around. No wonder they say you can experience all 4 seasons in one day!

To be prepared for this, make sure you always have your sunglasses at hand and your rain clothes within reach. Don’t drive when you have a bad sight because of heavy rainfall, snow or mist. Like they say in Iceland: ‘If you don’t like the weather, just wait 5 minutes’.

Best time to visit Iceland

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Snow on road Iceland

Final notes for renting a car in Iceland

Here are some final notes when you plan on renting a car in Iceland:

Check the kilometer limit

Some rental car companies put a limit on the number of kilometers that the car can be driven during a certain period of time. For example 100km/day, so in a week’s time, you are allowed to drive 700km. This means that,if you drive more than the allowed amount of kilometers, you have to pay extra for every kilometer you drove.

When you don’t plan on driving many kilometers, because you only stay in the area of Reykjavik, this could be a cheaper option.

If you plan on driving a lot, you might better look for a rental car company that rents out cars with unlimited kilometers.

Ring Road 1 Iceland

Drivers License & Age

You can legally drive in Iceland with all foreign driver’s licenses that are held for at least 1 year at the time of rental. There is no need to get an international driver’s license.

With age, the Icelandic people are a bit more thoughtful. You have to be at least 20 years old to be able to rent a passenger car. If you want to rent a 4WD car, you need to be at least 23 years old.

Book your rental car in advance

The longer you wait with booking your rental car, the more the price will go up. In high season (summertime), it is also likely that your choice is getting less as time goes by.

On the other hand, if you book your rental car too far ahead, you can also be disappointed with the price. In general, the ideal period to book your rental car is between 3 to 6 months before your trip.

Third-party car insurance

A lot of third-party rental car insurances do not cover any damages to a car you rent in Iceland. If you normally use third-party car insurance, make sure you check their policy to see if you are covered with this insurance.

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We love to hear from you

Hopefully, this blog post helped you out on your car rental knowledge for Iceland. Did you rent a car in Iceland and do you want to share your story or do you have a question? Please leave a comment below.

Don’t forget to check out what you can explore in Iceland!

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Nanet Moesman
Nanet is a full time world traveler ever since May 2017. She writes with passion about the destinations where she has been. You'll always find a personal touch in her blog posts when she talks about her own experiences. A pleasure to read!



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