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 organized 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 fulfill 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 traveling 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).

Insurance

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 tires (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:

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

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