What you need to rent a car in Iceland

To rent a car in Iceland, you must be at least 20 years old and hold a valid driver's license from your home country. Most rental companies also require an International Driving Permit (IDP) alongside your license — even though Iceland recognizes licenses from many countries, the IDP serves as a translation and is often mandatory by contract. You will also need a credit card in your own name to find the reservation and cover the damage deposit, which typically ranges from 500 to 2,000 ISK (Icelandic króna) depending on the vehicle class.

Your home country license must be valid for the entire duration of your rental. If your license is not in Latin characters, bring the IDP. Some rental companies will rent to drivers aged 18–19, but they charge a young driver fee of 2,000–5,000 ISK per day and may restrict you to certain vehicle types or require additional insurance.

You will pick up your car at Keflavík International Airport (the main entry point), in Reykjavík, or at smaller regional offices. Return the car to the same location or, if the company offers it, to a different branch — one-way rentals usually cost extra. Fuel is expensive in Iceland (roughly 200–250 ISK per liter as of recent years), so budget accordingly and understand whether your rental includes a full tank or a prepaid fuel option.

Key Takeaways

  • You need a valid driver's license from your home country, an International Driving Permit, and a credit card in your own name to rent a car in Iceland.
  • Rental companies require a damage deposit of 500–2,000 ISK, held on your credit card but not charged unless you damage the vehicle.
  • Iceland's roads are well-maintained in summer but can be dangerous in winter; four-wheel-drive vehicles are common in winter months and sometimes mandatory on certain routes.
  • Fuel costs are high, so clarify whether your rental includes a full tank, a prepaid fuel package, or a pay-as-you-go option.
  • Book through established rental companies or comparison sites; avoid unlicensed operators, which are common in Iceland and may not honor insurance claims.

Choosing between vehicle types and insurance options

Iceland's terrain and weather determine which vehicle makes sense. In summer (June–August), a standard two-wheel-drive sedan or compact car is sufficient for the Ring Road and most main routes. In winter (November–March), four-wheel-drive is strongly recommended and sometimes required by law on certain mountain roads; rental companies will specify which routes demand it. Larger vehicles like SUVs and vans cost more but offer better visibility and ground clearance on rough terrain.

Insurance is where rental costs can spike. The base rental price usually includes third-party liability (required by law), but collision damage waiver (CDW) and theft protection are optional add-ons. CDW typically costs 1,500–3,500 ISK per day and reduces your personal liability if the car is damaged. Many credit cards and travel insurance policies cover rental car damage abroad, so check your coverage before paying for the rental company's insurance — you may be duplicating protection.

Gravel roads are common in Iceland, especially in the interior and on less-traveled routes. Some rental companies exclude gravel roads from their standard insurance or charge extra for gravel road coverage. Read the contract carefully: if you plan to drive routes like the Kjölur or Sprengisandur highlands, confirm that your insurance covers unpaved roads or purchase the add-on upfront.

Booking through rental companies and comparison sites

Major international rental chains (Hertz, Avis, Budget, Europcar) operate at Keflavík and in Reykjavík, as do Icelandic companies like Hertz Iceland, Avis Iceland, and Budget Iceland. Local operators such as Sixt, Alamo, and smaller independent companies also compete for business. Prices vary widely, so compare quotes across multiple sites before booking.

Comparison sites like Kayak, Rentalcars.com, and Costco Travel (if you are a member) aggregate prices from many companies and can reveal deals. However, always read the fine print: some sites bundle insurance or add fees at checkout that were not visible in the initial quote. Book directly with the rental company if the comparison site's price is significantly lower than the company's own website — the discrepancy sometimes signals a third-party booking error or a rate that the company will not honor.

Avoid unlicensed or informal rental operators, which are common in Iceland. These businesses may not carry proper insurance, may not honor damage claims, and may disappear if a dispute arises. Stick to companies with a physical office, a phone number, and reviews on established travel sites.

What to expect at pickup and what to inspect

Arrive at pickup at least 30 minutes before your scheduled time. Bring your driver's license, IDP, credit card, and your booking confirmation. The rental agent will run your credit card for the damage deposit, review the insurance options one more time, and hand you the keys and rental agreement.

Before you drive away, walk around the car with the agent and inspect it together. Take photos or video of any existing dents, scratches, or damage — this protects you if the company tries to charge you for pre-existing damage when you return the car. Check that the fuel gauge reads full (if that is part of your agreement), test the lights and wipers, and confirm the spare tire and jack are in the trunk. Ask the agent to point out how to operate the headlights, windshield wipers, and any unfamiliar controls.

Request a written record of the car's condition, signed by both you and the agent. This document is your proof if a dispute arises later. If the agent refuses to document damage or seems evasive, consider renting from a different company — this is a red flag.

Driving rules, road conditions, and safety in Iceland

Iceland drives on the right side of the road. Speed limits are 50 km/h in towns, 80 km/h on rural paved roads, and 90 km/h on main highways unless otherwise posted. Headlights must be on at all times, even during daylight. Seatbelts are mandatory for all passengers. Drink-driving laws are strict: the legal blood alcohol limit is 0.04%, lower than in many countries.

Road conditions change rapidly. The Ring Road (Route 1) is paved and well-maintained, but gravel roads in the interior can be rough and remote. In winter, snow and ice make driving hazardous; some mountain roads close entirely from October to June. Check the Icelandic Road and Coastal Administration website (road.is) before each day of driving to see current conditions, closures, and weather warnings.

Fuel stations are sparse outside towns and the Ring Road. Fill up whenever you see a station, especially if you are heading into remote areas. Many stations are unmanned and accept only credit cards, not cash. Distances between towns can be 100+ kilometers, so plan your route and fuel stops in advance.

Wildlife and weather are hazards. Sheep and horses roam freely and may cross roads without warning. Sudden wind, rain, and fog can reduce visibility dramatically. Drive slowly on unfamiliar roads, especially at night or in poor weather, and do not assume that a paved road is safe in all conditions.

Returning the car and handling damage claims

Return the car on time and with a full tank (or as specified in your agreement). Arrive at least 30 minutes early so the agent has time to inspect the vehicle. The agent will walk around the car, check for damage, and compare the condition to the photos taken at pickup. If there is new damage, the agent will document it and explain the charge.

Damage charges are deducted from your credit card after you leave. If you disagree with a charge, contact the rental company in writing within a few days, before the charge posts. Provide your photos from pickup and any evidence that the damage was pre-existing or that the charge is incorrect. If the company refuses to budge, you can dispute the charge with your credit card company, though this process takes time.

Keep your rental agreement and all receipts until the charge appears on your credit card statement and you have confirmed it matches the agreed amount. Some companies take weeks to process damage claims, so do not assume silence means no charge is coming.

Frequently Asked Questions

Do I need an International Driving Permit if my license is in English?

Most rental companies require an IDP even if your license is in English, because the IDP is a standardized translation recognized internationally. Check with your specific rental company before booking, but assume you will need one and obtain it from your home country's motor vehicle authority before you travel.

Can I rent a car if I am under 20?

Yes, but only from companies that allow it, and you will pay a young driver surcharge of 2,000–5,000 ISK per day. Some companies restrict drivers aged 18–19 to certain vehicle types or require additional insurance. Check the rental company's age policy when you search for quotes.

What happens if I damage the car?

The rental company will document the damage, take photos, and deduct the repair cost from your credit card. If you have collision damage waiver insurance, the company covers the cost up to the policy limit. If you do not, you pay the full amount. Dispute any charge you believe is unfair in writing within days of returning the car.

Is it safe to drive in Iceland in winter?

Winter driving in Iceland is hazardous due to snow, ice, and short daylight hours. Four-wheel-drive is strongly recommended and sometimes required by law. Check road conditions daily on road.is, drive slowly, and consider hiring a guide or joining a tour if you are inexperienced with winter driving.

Can I drive on gravel roads with a standard rental car?

Yes, but your insurance may not cover damage from gravel roads unless you purchase gravel road coverage. Read your rental agreement carefully and ask the agent whether your insurance includes gravel roads. If you plan to drive routes like Kjölur or Sprengisandur, purchase the add-on upfront.