Avoiding Common Car Rental Mistakes in Iceland

Renting a car in Iceland can be the key to unlocking the nation's most stunning landscapes and hidden gems. From chasing waterfalls to exploring black sand beaches, having your own set of wheels allows you to travel at your own pace and veer off the beaten path. However, there are some common pitfalls that travellers encounter when renting a car in Iceland.

This guide will help you avoid these mistakes, so you can enjoy a stress-free and unforgettable adventure. We’ll cover everything from understanding rental terms to preparing for Iceland’s famously unpredictable weather.

Why Renting a Car is Essential in Iceland

Iceland is a country best explored by car. While guided tours cover popular sites, renting your own vehicle offers unmatched flexibility and convenience. Want to take your time gazing at the northern lights? Or manage your own itinerary along the Route 1 Ring Road? A car gives you freedom.

However, Iceland’s unique conditions—from rough terrain to sudden weather changes—mean preparation is crucial. Before getting behind the wheel in the “land of fire and ice,” make sure you’re fully equipped to handle the challenges.

Common Car Rental Mistakes and How to Avoid Them

Misunderstanding Rental Terms and Insurance Options

One of the biggest mistakes renters make is not fully understanding the terms and insurance options of their car rental agreement. Iceland’s unique driving conditions bring unique risks, and while basic insurance (such as Collision Damage Waiver and Personal Accident Insurance) is often included, it’s worth considering additional options like Gravel Protection (GP) or Sand and Ash Damage Waiver (SADW).

Tip: Always review the terms and conditions before confirming your booking. Pay special attention to exclusions, like damages from improper use or driving on prohibited roads. Opt for higher-tier protection packages if you plan to drive in challenging conditions, such as gravel roads in the Highlands.

Renting the Wrong Vehicle for Your Trip

Not all vehicles in Iceland are created equal. While a standard 2WD car may suffice for summer drives along paved roads, a 4x4 vehicle is essential for exploring the Highlands or driving in winter conditions.

Tip: Assess your itinerary. If you’re travelling on F-roads or venturing into remote areas, renting a 4x4 is mandatory. During winter months, ensure your car is fitted with studded winter tires for extra safety.

Failure to Prepare for Icelandic Weather

Iceland’s weather is infamous for its unpredictability. You might experience sunshine, rain, and snow all in the span of an hour. Failing to account for these rapid changes can lead to dangerous driving conditions.

Tip: Regularly check the Icelandic Road and Coastal Administration’s website (road.is) for updates on road conditions and weather forecasts (vedur.is). Always carry waterproof clothing, and never underestimate the strength of Icelandic winds when opening your car doors. Park your car facing the wind to prevent the doors from being blown open.

Overpacking or Underpacking

Another common mistake is not considering the size of your rental car when planning your luggage. On the flip side, some travelers don’t pack essentials for emergencies, especially in the winter months.

Tip: Choose a car with enough room for both passengers and luggage. Pack emergency items such as a flashlight, phone charger, bottled water, snacks, and a warm blanket in case of unforeseen circumstances.

Not Refilling the Tank or Battery Before Returning

Whether you rented a petrol, diesel, or electric car, failing to return it with the appropriate levels can result in additional charges. There’s also a newly introduced road tax based on kilometres driven in hybrid or electric cars since 2024.

Tip: Check your rental company’s fuel or charging policy at pick-up. With Höldur Car Rental, petrol and diesel cars should be returned with a full tank, while electric cars must be charged to at least 60%.

Ignoring Speed Limits and Road Signs

Iceland takes road safety seriously, and speed cameras are widely used. Ignoring limits or other signage, such as those prohibiting off-road travel, can lead to hefty fines or even accidents.

Tip: Familiarize yourself with Icelandic road signs and follow speed limits. Remember that driving off-road is illegal and can result in significant penalties and environmental damage.

Essential Tips for Safe and Enjoyable Driving in Iceland

1. Understand Iceland’s Unique Driving Laws

• Off-road driving is strictly prohibited. Stick to marked routes.
• Single-lane bridges and blind hills are common. Approach with caution and yield as necessary.
• Note that F-roads areas require specific vehicles (like 4x4s).

2. Avoid Stopping on the Road for Photos

Iceland’s scenic beauty can be distracting, but stopping on the road to capture a photo is dangerous and illegal. Always pull over safely at designated parking areas before taking photographs.

3. Adjust Your Schedule Based on Weather

Strong winds, icy roads, and limited daylight in the winter mean flexibility is key. Keep extra time in your itinerary to avoid rushing in poor conditions.

4. Download Helpful Apps

Our free travel app is here to make your trip smoother. Stay updated with real-time weather alerts and notifications and more.

5. Inspect Your Vehicle Before Leaving the Lot

Thoroughly check your rental car for any pre-existing damages and take photos if needed. This will help avoid being charged for issues you didn’t cause during your rental period.

Frequently Asked Questions

What type of car should I rent in Iceland?

A 2WD is suitable for summer and paved roads. If visiting the Highlands or travelling in winter, opt for a 4x4 with winter tires.

Is additional insurance worth it?

Yes, especially Gravel Protection (GP) and Sand and Ash Damage Waiver (SADW), as gravel chips and sandstorms can cause significant damage.

Can I drive through rivers or on F-roads with any car?

No. River crossings and F-roads are restricted to 4x4 vehicles and require careful planning.

Are all cars equipped for winter driving?

From November to April, Höldur cars come fitted with winter tires.

What happens if I break down?

Höldur offers 24/7 roadside assistance. Contact our support team immediately for help.

Are there speed cameras in Iceland?

Yes. Speeding fines are steep, so obey all speed limits.

How quickly can weather change in Iceland?

Dramatically within an hour. Always check forecasts and condition updates before heading out.

Can I return my rental car at a different location?

Yes, Höldur offers one-way rentals for an additional fee.

Do I need a special license to drive in Iceland?

No, but drivers must be over 20 or 23 depending on the car group and hold a valid license for at least one year.

What’s the new road tax for electric and hybrid vehicles?

A per-kilometre tax applies to these vehicles, calculated and charged after your rental.

Make the Most of Your Rental in Iceland

Exploring Iceland by car is one of the most rewarding ways to experience its rugged beauty and diverse landscapes. By avoiding common car rental mistakes and preparing for Iceland’s unique challenges, you’ll ensure a safe and enjoyable adventure.

At Höldur Car Rental, we provide a fleet of over 8,000 vehicles designed for Iceland’s conditions, from compact cars to robust 4x4 SUVs. With convenient locations at Keflavik Airport and a strong commitment to customer safety, we’re ready to make your trip memorable.

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