How Expensive is it to Rent a Car in Iceland?

To answer that, let’s break down the details, starting with an average cost analysis, hidden fees, and why rental prices in Iceland can fluctuate so dramatically depending on various factors.

Why Renting a Car in Iceland is Essential

Iceland’s landscape is rugged, and many of its most stunning locations—like the remote Highlands, off-the-beaten-path geothermal pools, and isolated fjords—are only accessible by car. Renting a vehicle offers freedom from tour schedules, the ability to explore lesser-known gems, and the chance to chase the elusive Northern Lights without restrictions.

But with this freedom comes a cost. Iceland is known for its high cost of living, and car rentals are no exception. Let’s dive into the nitty-gritty details of renting a car in Iceland, and what you can expect to pay.

Average Car Rental Costs in Iceland

The cost of renting a car in Iceland depends on various factors such as the time of year, the type of vehicle, and how far in advance you book. Here’s a breakdown of the typical costs:

Low season typically runs from October to April, while high season (when prices peak) coincides with the summer months from May to September. The prices fluctuate primarily due to the increase in tourist demand in the summer, when the weather is more conducive to outdoor exploration.

Factors Affecting Rental Costs

1. Seasonality: Iceland sees a huge influx of tourists during the summer. Roads to popular locations like the Westfjords and interior highlands are accessible, which increases demand for rentals. As a result, car rental companies can charge significantly higher rates during the summer.

2. Vehicle Type: Renting a small economy car is generally the cheapest option, but for those planning on venturing into Iceland’s highlands or rough terrains, a 4x4 is required. While more expensive, these vehicles are better suited for Iceland's gravel roads, especially if you’re tackling the F-Roads (mountain roads).

3. Booking in Advance: Like anywhere, booking your car rental ahead of time will save you money. Prices can skyrocket if you wait until the last minute, especially during the high season.

4. Insurance Coverage: Iceland’s unique weather and terrain mean that additional insurance is often recommended. Standard rentals typically come with basic Collision Damage Waiver (CDW), but additional insurance for gravel protection, sand, and ash damage is available—and often necessary. This can add anywhere from $10 to $30 per day to your rental cost.

5. Rental Period: The longer you rent, the better deal you might get on a per-day basis. A week-long rental might come with discounts, while a one-day rental can carry a premium.

6. Fuel Costs: Renting a car is just part of the expense. Iceland’s fuel prices are among the highest in the world. In 2024, prices averaged around $2.50 per liter, or about $9.50 per gallon. For long drives along the Ring Road or into the remote highlands, fuel expenses can quickly add up.

Hidden Fees and Additional Costs

Beyond the base rental cost, there are several hidden fees you should be aware of:

• Pick-up and Drop-off Locations: If you pick up your car at Keflavik International Airport, expect an additional fee (around $30 to $40). Renting in Reykjavik might avoid this cost, but you’ll still need to get to the capital city from the airport, which may cost even more in the long run.

• Young Driver Fees: Drivers under 25 may face additional charges, usually around $10 per day.

• One-Way Rental Fees: Planning to drop off the car in a different location than where you picked it up? Many companies charge an extra fee for this convenience.

• GPS and WiFi Rental: Iceland’s landscapes are remote, and while most roads are well-marked, a GPS or WiFi device can be invaluable. Rental companies offer these services for around $10 per day.

Why Rental Prices Vary: The Impact of Iceland’s Infrastructure

Unlike many European countries, Iceland’s population is sparse, and infrastructure is built to accommodate the unique challenges of its environment. Most roads in Iceland are well-paved, but the highlands and F-Roads are gravel paths that require vehicles with higher clearance and 4x4 capability. This is one reason car rental prices can be steep, particularly for SUVs or specialized vehicles.

Icelandic car rental companies also maintain high-quality fleets that are frequently updated to handle the rough conditions of Iceland’s unpredictable weather. This results in higher maintenance costs, which are passed onto consumers.

Moreover, car rental prices reflect the country’s economic environment. Iceland imports most of its goods, including cars and fuel, and the overall cost of maintaining and operating a vehicle in Iceland is higher than in mainland Europe or the US.

Campervans: A Different Kind of Rental Option

For many visitors, renting a campervan is a popular choice, offering both accommodation and transportation in one. While campervans are more expensive to rent than regular cars (starting around $150 per day in the low season), they can offset accommodation costs, which are also notoriously high in Iceland.

For example, a modest hotel or guesthouse in Reykjavik can range from $150 to $300 per night during the high season. By comparison, camping with a campervan might cost only $10 to $20 per night, making this a more budget-friendly option if you’re comfortable with a more rugged experience.

Ways to Save on Car Rentals in Iceland

There are several strategies to cut costs while still enjoying the flexibility of having a rental car in Iceland:

1. Book in Advance: Secure your car rental as early as possible to lock in lower rates, especially if traveling during peak season.

2. Use Price Comparison Websites: Websites like Rentalcars.com, Kayak, and AutoEurope allow you to compare prices from different rental companies, ensuring you get the best deal.

3. Consider Manual Transmission: Automatic cars are typically more expensive to rent in Iceland. If you’re comfortable driving manual, you can save a decent amount.

4. Rent a Smaller Vehicle: If you’re not planning on venturing into the highlands or F-Roads, opt for a smaller, more fuel-efficient car. Iceland’s main roads, including the Ring Road, are paved and well-maintained, so a 4x4 isn’t necessary for most trips.

5. Decline Extras: If you’re confident using your smartphone for navigation, you can skip the expensive GPS add-on. Similarly, if you’ve got a portable WiFi device, you won’t need to rent one.

6. Check Insurance Options Carefully: Rather than paying for every insurance add-on, check if your credit card or personal car insurance offers international coverage. You might already be covered for certain risks, which can save you money on the rental company's offerings.

Conclusion: Is Renting a Car in Iceland Worth It?

Yes, renting a car in Iceland is expensive, but for most travelers, it’s worth every penny. Iceland’s most beautiful and remote spots are inaccessible by public transportation, and a rental car allows you to experience the island at your own pace. If you’re strategic about booking early, choosing the right vehicle, and managing costs like insurance and fuel, you can minimize expenses while maximizing your experience.

The key is to weigh your options based on your travel plans, budget, and driving preferences. Whether you choose an economy car for the Ring Road or a campervan for a cross-country adventure, a rental car in Iceland opens up a world of exploration and unforgettable sights.