Renting a car in Iceland means dealing with specific rules that don't explore elsewhere, and booking without understanding them can leave you stranded or facing unexpected charges

Iceland's rental market is built around the reality that you'll be driving on gravel roads, in sudden weather, and often far from help. Every major rental company operating there—Hertz, Avis, Budget, and local firms like Sixt and Europcar—requires things that seem unusual if you've rented elsewhere: proof of a credit card in your own name (not a debit card), a valid driver's license from your home country, and often a second form of ID. Most companies also require you to be at least 20 years old, though some set the minimum at 25 and charge extra for drivers under that age.

The real cost of renting in Iceland is not the daily rate you see advertised. It's the insurance. Standard collision damage waiver (CDW) coverage in Iceland typically costs 25 to 50 percent of your daily rental rate, and it still leaves you liable for a deductible—often 500,000 to 1,000,000 Icelandic króna (roughly $3,500 to $7,000 USD, though exchange rates vary). Gravel roads are classified as high-risk terrain, and damage from gravel is not always covered under basic CDW. You can buy additional coverage called "gravel protection" or "super CDW," which raises your daily cost but removes or lowers the deductible. Understanding what you're actually insured for before you drive away is the difference between a manageable expense and a financial shock when you return the car.

Key Takeaways

  • You must provide a credit card in your own name at pickup, not a debit card, and most companies require you to be at least 20 or 25 years old.
  • Standard collision coverage in Iceland leaves you liable for a deductible of 500,000 to 1,000,000 króna, and gravel damage may not be covered without additional protection.
  • Fuel is expensive and stations are sparse outside the Ring Road, so plan your route and refuel in towns rather than at rental company pumps.
  • Winter driving (November through March) requires studded tires and chains, and many rental companies restrict travel on certain roads during winter months.
  • Booking directly with the rental company often costs less than third-party booking sites, and you can negotiate insurance options before you arrive.

What documents and payment methods you actually need

Bring your original driver's license from your home country—an International Driving Permit is not required by law in Iceland, but some rental companies ask for one anyway, so check with your chosen company before you travel. You will also need a passport or national ID card. A credit card in your own name is mandatory; debit cards are not accepted, even if they have a Visa or Mastercard logo. The rental company will place a hold on your credit card for the deductible amount (typically 500,000 to 1,000,000 króna) plus the rental cost, so you need available credit, not just available funds.

If you are under 25, expect to pay a young driver surcharge—usually 2,000 to 5,000 króna per day. Some companies will not rent to drivers under 20 at all. Check the age policy of your specific rental company before booking, because this charge does not always appear in the initial quote.

Insurance options and what gravel damage actually means

The standard collision damage waiver (CDW) in Iceland covers damage from accidents but often excludes damage from gravel, sand, or ash—which is a problem because much of Iceland's interior is unpaved. When you pick up the car, the rental company will show you the existing damage on a condition report. You must photograph or video every scratch, dent, and chip before you leave the lot, because you will be charged for any damage not documented at pickup, even if you did not cause it.

Gravel protection (sometimes called "gravel insurance" or "sand and ash coverage") costs 1,500 to 3,000 króna per day and removes the exclusion for gravel damage. Super CDW or premium coverage typically costs 3,000 to 6,000 króna per day and reduces or eliminates your deductible entirely. The choice depends on your route: if you are staying on the Ring Road and main highways, standard CDW may be enough. If you are driving into the highlands or on F-roads (mountain roads), gravel protection is worth the cost.

Fuel costs and where to refuel

Petrol and diesel in Iceland cost roughly double what you would pay in North America or mainland Europe. Prices vary by station and change frequently, but expect to pay 200 to 250 króna per liter (roughly $1.50 to $1.90 USD per liter, though this fluctuates). A full tank in a mid-size car costs 8,000 to 12,000 króna.

Rental companies often offer a "fuel included" option where you prepay for a full tank at a marked-up rate. This is almost never worth it. Instead, fill up at N1, Ómega, or Dælan stations in towns—these are cheaper than rental company pumps and more reliable than small roadside stations. read the Eldsnið app or check Google Maps before you drive into remote areas, because fuel stations outside the Ring Road are sparse and may close without notice. Running out of fuel in Iceland means a tow truck bill of 20,000 to 50,000 króna or more.

Winter driving rules and seasonal restrictions

From November through March, Iceland requires all vehicles to have either studded winter tires or chains. Rental companies provide studded tires on winter bookings at no extra charge, but you must request them when you book. If you arrive without requesting winter tires and the company does not have them available, you cannot legally drive outside towns.

Many rental companies restrict travel on certain roads during winter—particularly F-roads and roads in the highlands. Your rental agreement will specify which roads are off-limits. Driving on a closed road voids your insurance and can result in a fine from the Icelandic Road and Coastal Administration. Check the road status at road.is before you leave each morning, because conditions change rapidly and roads can close overnight.

Booking directly versus third-party sites

Booking through Rentalcars.com, Kayak, or Expedia often shows a lower headline price than booking directly with the rental company. However, third-party sites sometimes exclude insurance options from the quote, or they quote a lower insurance rate that the rental company does not honor at pickup. You end up negotiating at the counter when you are tired and have already committed to the booking.

Booking directly with the rental company—Hertz Iceland, Avis Iceland, Budget Iceland, or local companies like Sixt or Europcar—lets you see the full cost upfront, including insurance, and you can call the company before you travel to confirm what is and is not covered. Direct booking also makes it easier to request specific add-ons like winter tires, GPS, or a second driver without paying surprise fees at pickup.

What happens at pickup and what to check before you drive

Arrive at least 30 minutes before your scheduled pickup time. The rental company will ask you to sign a damage report and show you the car's condition. Walk around the vehicle with the agent, point out every existing scratch or dent, and take photos or video of the entire car—doors, windows, undercarriage, tires, and roof. Do not sign the damage report until you are satisfied that all existing damage is documented. This is your only protection against being charged for damage you did not cause.

Check that the spare tire, jack, and warning triangles are in the car. Test the lights, wipers, and heating. Confirm that the fuel gauge reads full if you paid for a full tank. Ask the agent to show you how to operate the GPS or phone mount, and confirm that your insurance documents are in the glove box. If anything is missing or broken, tell the agent before you leave the lot.

Driving rules and what to expect on Icelandic roads

Speed limits in Iceland are 50 km/h in towns, 80 km/h on gravel roads, and 90 km/h on paved roads outside towns. Speed cameras are common, and fines are steep—5,000 to 50,000 króna depending on how far over the limit you were. Seatbelts are mandatory for all passengers. Headlights must be on at all times, even during the day.

Gravel roads are not smooth. Driving too fast on gravel causes your tires to lose grip, and you can skid into oncoming traffic or off the road. Slow down, leave extra distance between you and other cars, and be prepared to pull over if you see a vehicle approaching. Many accidents in Iceland happen because drivers underestimate how quickly conditions change on gravel.

Parking is free in most towns, but in Reykjavik you will need to pay at meters or use the ParkIceland app. Never leave valuables visible in the car—theft from rental vehicles is common in Reykjavik and other tourist areas.

Returning the car and avoiding surprise charges

Return the car with a full tank of fuel, or you will be charged a premium rate for fuel the rental company adds. Wash the car before you return it—some companies charge 5,000 to 10,000 króna for cleaning if the car is visibly dirty. Return it on time; late fees are typically 5,000 to 10,000 króna per hour.

The rental company will inspect the car and compare it to the damage report you signed at pickup. If there is new damage, they will take photos and send you an invoice within a few days. This is why the damage report at pickup is so important—if damage is not documented then, you have no way to prove you did not cause it. Keep copies of all paperwork, including the damage report and insurance documents, for at least a month after you return the car.

Frequently Asked Questions

Do I need an International Driving Permit to rent a car in Iceland?

No, Iceland accepts a valid driver's license from your home country. However, some rental companies request an International Driving Permit as well, so check with your specific company before you book. If you do not have one and the company asks for it at pickup, you may not be able to rent the car.

Can I drive on F-roads with a standard rental car?

F-roads are mountain roads that require high-clearance four-wheel-drive vehicles. Standard rental cars are not permitted on F-roads, and driving on one voids your insurance. If you want to explore the highlands, you must rent a four-wheel-drive vehicle, which costs significantly more than a standard car.

What happens if I damage the car and I did not buy gravel protection?

You will be charged for the repair, up to your deductible limit (usually 500,000 to 1,000,000 króna). If the damage is from gravel and you did not buy gravel protection, the rental company may deny the claim entirely, leaving you liable for the full repair cost. This is why understanding your insurance before you drive is critical.

Is it cheaper to rent a car in Reykjavik or at Keflavik Airport?

Airport rental locations typically charge a facility fee on top of the daily rate, making them more expensive than downtown Reykjavik locations. However, if you are arriving late or leaving early, the convenience may be worth the extra cost. Compare quotes for both locations before you book.

What should I do if I get a speeding ticket while driving a rental car?

The rental company will receive the fine and may charge you an administrative fee on top of it. Pay the fine promptly to avoid additional penalties. Keep the receipt and submit it to your travel insurance company if your policy covers traffic violations.