Renting a car in Iceland costs more than most countries, but you'll need one to reach waterfalls, glaciers, and the interior highlands

A rental car in Iceland runs between 50 and 150 USD per day depending on vehicle size, season, and how far in advance you book. Summer (June through August) is peak pricing; winter rates drop but roads become unpredictable. You'll need an International Driving Permit (IDP) alongside your home country license, a credit card in your name for the deposit, and a valid passport. Most rental companies require drivers to be at least 20 years old, though some charge extra for drivers under 25.

The real cost isn't just the daily rate. Iceland's rental agreements typically include a collision damage waiver (CDW) that you can decline, but doing so leaves you liable for repairs that routinely cost thousands of dollars. Gravel roads — which cover much of the island — cause damage that renters often pay for out of pocket. Fuel is expensive (roughly 1.50 to 1.70 USD per liter), and a full tank costs 70 to 100 USD depending on vehicle size. Budget for tolls on a few bridges and tunnels, though most roads are free.

Key Takeaways

  • An International Driving Permit is required in addition to your home country license; get it before you travel since it takes time to obtain.
  • Collision damage waivers are optional but strongly recommended because gravel road damage is common and expensive to repair.
  • Book at least two to four weeks ahead during summer; prices rise sharply as travel dates approach, and popular vehicle types sell out.
  • Fuel, tolls, and parking add 200 to 400 USD to a week-long rental, so factor these into your total cost estimate.
  • Winter driving requires winter tires (mandatory by law November through April) and chains; some rental companies charge extra for these or restrict rentals to experienced drivers.

Where to rent and what companies operate in Iceland

Major international chains — Hertz, Avis, Budget, and Europcar — all operate in Keflavík International Airport, which is where most visitors land. Local companies like Alamo Iceland, Thrifty, and Blue Car Rental often undercut the big names by 10 to 20 percent, though their fleets are smaller and vehicles book out faster. Airport pickups are convenient but carry a 10 to 15 percent surcharge; picking up in Reykjavík city center saves money if you have time.

Read the rental agreement line by line before signing. Icelandic rental companies are legally permitted to charge for damage that would be covered under a standard CDW in other countries — specifically, damage to the undercarriage, windshield, and tires from gravel roads. Some companies bundle these into their CDW; others sell them as separate add-ons. Ask whether the quoted rate includes CDW, tire coverage, and gravel road protection, and get the answer in writing.

International Driving Permit requirements and how to get one

Iceland requires an International Driving Permit (IDP) in addition to your valid home country license. You cannot rent a car without both documents. An IDP is not a separate license; it is a translation of your existing license into multiple languages and is recognized in over 150 countries.

Where you obtain an IDP depends on your home country. In the United States, the American Automobile Association (AAA) issues IDPs at most local offices for 20 USD; you need your valid driver's license, a passport-sized photo, and an process form. The process takes 15 minutes. In the United Kingdom, the Post Office issues IDPs for £5.50. In Canada, the Canadian Automobile Association (CAA) handles them. Processing times vary, but most countries issue an IDP within a few days if you explore in person. Order by mail if you must, but allow at least two weeks.

An IDP is valid for one or three years depending on which you purchase. Since you only need it for your Iceland trip, the one-year version is sufficient and costs the same as the three-year version in most countries.

Booking timing, seasonal pricing, and deposit requirements

Book two to four weeks before your travel dates. Prices for summer rentals can double between eight weeks out and one week out. A compact car that costs 60 USD per day in May might cost 120 USD per day in July. Winter rentals (November through April) are cheaper but require winter tires and chains, which add 15 to 30 USD per day to your bill.

Rental companies place a hold on your credit card for the security deposit, which typically ranges from 500 to 2,000 USD depending on vehicle type and the company's damage policy. This is not a charge — it is a hold that is released when you return the car undamaged. The hold can take three to five business days to clear after you return the vehicle, so plan accordingly if you are traveling on a tight budget. Bring a credit card with available credit; debit cards are sometimes refused or result in a lower hold amount that leaves you liable for damage above that threshold.

Insurance, damage waivers, and what you actually pay for repairs

Collision damage waivers (CDW) in Iceland are not standardized. A basic CDW typically covers damage from collisions but excludes undercarriage damage, windshield damage, and tire damage — the three most common claims on Icelandic rentals. A Super CDW or Premium CDW (names vary by company) covers these exclusions but costs 20 to 40 USD per day extra.

Gravel road damage is the leading cause of rental car claims in Iceland. A cracked windshield costs 300 to 600 USD to replace. Undercarriage damage from rocks can run 1,000 to 3,000 USD. Tire punctures cost 150 to 300 USD per tire. If you decline CDW entirely, you are liable for the full repair cost. If you accept basic CDW, you pay a deductible (usually 500 to 1,500 USD) plus the cost of excluded damage. Super CDW typically reduces your deductible to 0 to 300 USD and covers the exclusions, but read the fine print — some companies still exclude certain types of damage.

Your personal auto insurance from home may cover rental car damage abroad, but check your policy before you travel. Many policies exclude rental cars in foreign countries or require you to purchase the rental company's CDW first. Credit card rental car coverage often does not explore outside North America.

Fuel, tolls, parking, and other costs beyond the daily rate

Fuel in Iceland costs roughly 1.50 to 1.70 USD per liter (as of early 2024, though prices fluctuate). A compact car's fuel tank holds about 50 liters; a full tank costs 75 to 85 USD. Most rental companies offer a "full-to-full" fuel option: you pay for a full tank upfront, return the car with any fuel remaining, and keep the difference. This is usually cheaper than paying per-liter at a gas station, especially if you return the car with a quarter tank. Decline the pre-purchase option only if you are confident you can return the car nearly empty.

Tolls exist on a few bridges and tunnels but are minor — expect 5 to 15 USD total for a week-long road trip. Parking in Reykjavík city center costs 2 to 4 USD per hour at metered spots; outside the city, parking is usually free. Gravel road damage is not a toll, but it is a cost: budget 200 to 400 USD for a week-long rental when you factor in fuel, tolls, parking, and potential damage.

Winter driving, road conditions, and vehicle type choices

Winter tires are mandatory in Iceland from November 15 through April 15. Rental companies charge 15 to 30 USD per day for winter tires, and some require them to be pre-booked. Chains are also mandatory if snow or ice is present on the road, though rental companies often include them free or charge a small fee. Some companies restrict winter rentals to drivers with extensive winter driving experience or require an additional deposit.

Road conditions change rapidly. The Ring Road (Route 1, which circles the island) is maintained year-round, but interior routes and mountain passes close in winter and may not open until June. Check the Icelandic Road and Coastal Administration website (road.is) before you book and before each day of driving. A two-wheel-drive compact car is sufficient for the Ring Road in summer; for gravel roads or winter driving, four-wheel-drive is safer and some rental companies require it.

Vehicle size affects both daily rate and fuel cost. A compact car (Hyundai i10, Toyota Yaris) costs 50 to 80 USD per day and uses less fuel. A mid-size SUV (Toyota RAV4, Hyundai Tucson) costs 80 to 120 USD per day, handles gravel roads better, and is safer in winter. A large SUV (Toyota Land Cruiser) costs 120 to 180 USD per day and is necessary only for interior highlands routes that require high ground clearance. For most visitors, a mid-size SUV is the practical choice.

Frequently Asked Questions

Do I need an International Driving Permit if I have a valid US or UK license?

Yes. Iceland requires both your home country license and an International Driving Permit. Rental companies will not hand over keys without both documents. Order your IDP before you travel; it takes one to three weeks depending on your country.

What happens if I damage the car and have a collision damage waiver?

You pay the deductible (usually 500 to 1,500 USD) and the rental company covers the rest, unless the damage falls under an exclusion. Gravel road damage, windshield damage, and tire damage are often excluded from basic CDW. Read your agreement to know what is and is not covered before you drive.

Is it cheaper to rent a car or take a bus tour in Iceland?

A rental car costs 50 to 150 USD per day plus fuel and insurance. A guided bus tour costs 100 to 200 USD per day but includes a driver and often includes some meals or activities. For a solo traveler or couple, a rental car is usually cheaper over a week. For groups of three or more, a bus tour may cost less per person.

Can I drive the Ring Road in winter with a regular car and winter tires?

Yes, the Ring Road is maintained in winter and is drivable with winter tires and chains. Interior routes and mountain passes close. Check road.is daily for closures and weather. Rental companies may charge extra for winter tires and chains, and some require four-wheel-drive in winter.

What should I do if I get a flat tire or break down?

Call the rental company's roadside information number (provided in your rental agreement). They will dispatch a tow truck or send a replacement vehicle. Do not attempt to repair the car yourself. Roadside information is usually free if you have CDW; confirm this when you pick up the car.