Renting and Driving a Car in Iceland
What Type of Car to Get
We traveled to Iceland in May 2022 when gas prices were being squeezed by global conditions, so prices were phenomenally high. For that reason, we opted for a smaller, more fuel efficient sedan and stayed away from SUVs. We got even luckier when we picked up our car - BlueCar upgraded us to a Kia Seed, which is sort of like a wagon or Subaru, but this one was a hybrid. So we were able to drive clear across the country before needing to fill up.
Finding Your Car Rental Agency
In general, I always recommend getting a car close to the airport. I've rented from agencies further from airports before, and while cheaper, it really is a pain to add in more logistics of taking shuttles to and from when trying to get to your plane. There are a handful of rental car agencies in the Reykjavik airport terminal, all the familiar American brands were there. BlueCar, our Icelandic car company, is located at the airport but is a very easy, 2 block walk outside the terminal. When we first landed, we didn't realize how easy that walk would be, so we opted for the airport shuttle. But the shuttle is not the best way to get there, at all. It runs every 15min and the pickup/dropoff locations aren't clearly labeled. When you exit the terminal there will be the other rental car agencies to your left and a small market to your right (we recommend stocking up at that market, snag some water, snacks, etc). The airport shuttle picks up right outside the exit on your left - you don't need to walk to any other lots or really walk anywhere. The bus will eventually show. There are 4 stops on the route so depending on where you're renting from, it's really easier to walk if the weather is ok. We took the shuttle to BlueCar which was the first stop. In hindsight, we would have just walked - much easier and faster.
Insurance Options and Add Ons
Additional Car Insurance: We got it. We confirmed that our car insurance here in the states would NOT cover damages, neither would our credit card (this is sometimes an option). So for that reason, went with the coverage. This could definitely be debated, so just do your research and check with your insurance company and credit card first.
Wifi add on: Pass on this! We have TMobile which is known for having pretty good international coverage. We also made sure to download Iceland maps from Google ahead of time so our phones wound't need the data to navigate. But while I had service, even full LTE, my phone was VERY sluggish, so this is where I recommend purchasing the upgraded data speeds when you land. It's $5/day and much cheaper than the wifi-add on option, and you have it wherever you go, not just in the car. Be sure to price compare your carrier first.
Gravel insurance - YUP! - We opted for insurance coverage through the rental company AND gravel/sand storm coverage...because Iceland. It made checkout a breeze - the guy didn't even bother checking the car. That said, this really is optional. I would bet for most people, for most locations, you won't even see a gravel road. We drove on them 3-4 times max, and not for long distances. Once to visit the Gerðuberg Cliffs, once to visit a lighthouse in Snaefellsness, once while driving to our Airbnb on a farm in Holt. In all of those cases, the gravel is large and doesn't really fly around too much. But there was one road, going to the cliffs, where the car in front of us was kicking up gravel a lot, you need to keep your distance in those cases. So for us, it was worth not having to worry about damage.
Buying Gas
You MUST have a chip and a pin on your debit or credit card to buy gas in Iceland - but in our experience, this was the only time you needed the chip/pin in Iceland. Otherwise Apple Pay worked literally everywhere, or you could use your credit card and just sign a receipt like usual. No gas stations anywhere accepted Apple/Google pay. Thankfully my husband remembered to bring his debit card, which has the chip/pin combo. But I highly recommend reaching out to your credit card company and having a pin added to your card. BUT you need to reach out 2-3 weeks ahead of time! They will likely need to mail you a document with the pin, it takes forever. Fill up your car when in doubt b/c stations can be few and far between. Know that you'll get a fee each time you use a debit/credit card that doesn't support international purchases.
Driving in Iceland
Max speed is 90km/hr which is about 55miles an hour on highways outside of the city. Speeds varied and speed limit signs weren't everywhere, so drive carefully. Lanes are narrow, lots of one land bridges, and tons of roundabouts. Almost no stop signs, they use a yield sign instead. There are speed cameras in rural areas, sometimes you'll see a sign warning you of the camera but not always. Seems like locals usually went 10km over the limit, but easier to just let them pass then risk a ticket there.
Parking
When you're driving around in the country, parking is pretty much wherever you stop your car. 99% of sites you visit will have dedicated lots and 99% of those will be free (some places charge for parking). In Reykjavic, we had no trouble finding street parking. You may need to do some loops around the block, but you will find a spot. Parking can be free in many instances but if it's not, be sure to download the Parka app - it's like ParkMobile in the U.S. You enter your car info, connect your credit card, and can pay by the hour. In many instances, parking is free over weekends and on holidays so it may not be needed.