Car Rentals in Iceland

Starting January 1, 2026, the Icelandic government introduced a new "Kilometer Fee" to fund road maintenance. Instead of taxing the fuel you buy at the pump, the government now taxes the actual distance you drive.

Is this a price increase?

For most travelers, no. While you will see this new fee on your rental invoice, the government has removed significant taxes from fuel prices. This means you pay less per liter at the gas station, which helps balance out the new road fee.

How much is the fee?

The government base rate for standard passenger cars is 6.95 ISK per kilometer (approx. €0.05 or $0.05 per km). This ensures that every driver contributes exactly for the amount of road they use. Rental Companies have the option of charging a day price instead of 1.395 ISK per day.

Why did the law change?

It makes the system fairer. In the past, road maintenance was funded by gas taxes. However, with the rise of electric vehicles (EVs) that don’t use gas, the old system became outdated. This new system ensures that every car, whether gas, diesel, or electric pays equally for road upkeep.

I'm renting an Electric Vehicle. Do I still pay?

Yes. As of 2026, all vehicles on Icelandic roads must pay the Kilometer Fee, regardless of what engine they have.

How do I pay this fee?

The fee is either calculated based on your usage or is a predetermined per-day price and is typically settled at the rental desk (either upon pickup or return, depending on your specific rental terms). So the supplier charges on behalf of the government either one of these:

• a) A kilometer fee after your rental, calculated based on your odometer on return
• b) A daily fee, usually charged before the rental at the desk.

There is a car rental pickup & return available from the following locations:

• Keflavik International Airport
• Keflavik / Reykjanesbaer
• Reykjavik Domestic Airport
• Reykjavik Capital
• Some Guesthouses/Hotels

If you want to return your vehicle at a different location than pickup, there might be an added fee.

The right rental vehicle depends on your travel plans and the time of year. For most travelers driving the Ring Road in summer, a compact or economy car is enough. If you're visiting in winter or plan to drive on F-roads (mountain roads), a 4x4 vehicle is highly recommended. For added comfort or longer trips, many travelers choose a campervan or motorhome to combine transport and accommodation.

Northbound’s search filters make it easy to find the right vehicle for your route, group size, and budget.

You can book your vehicle on Northbound using a credit-card or some 16-digit debit cards.

The card holder does not need to be the same person as the driver. However, a credit card might need to be presented at the time of vehicle pickup where there is a security deposit or imprinting required.

You can go to our Debit Card Car Rentals website for further information about renting a vehicle with a debit card in Iceland.

Booking early is the easiest way to save, especially in high season. You can choose any type of vehicle, as we work with suppliers who offer fuel-efficient options across all categories.

Also, as an added tip, always make sure you have the correct insurance for your needs, reduce the likely hood of getting fines by driving responsibly and return the vehicle on time and full of fuel.

Read further for visiting Iceland on a budget

Mandatory insurances like Collision Damage Waiver (CDW) and Third Party Liability (TPL) are always included in your rental. Many suppliers also offer optional upgrades such as gravel protection, sand and ash coverage, and even zero-risk insurance that reduces your liability to zero in case of damage. It’s a good idea to choose coverage based on your preferences and comfort level.

Yes. All prices listed on Northbound include mandatory fees such as basic insurance, taxes, and airport charges when applicable. You’ll see the full cost before you book, no hidden fees & no surprises. Optional extras like additional insurance or GPS and more can be added during the booking process.

In most cases, you need to be at least 20 years old to rent a car in Iceland. Some suppliers allow drivers as young as 18, while others require you to be 23 or older for specific vehicle types like 4x4s, campers, or motorhomes. Always check the age requirements for the vehicle you're booking, as they can vary between suppliers.

For further information, read this article.

Yes, renting a car in Iceland is highly recommended. It gives you the freedom to travel at your own pace and explore places that are hard to reach with public transport. The international airport (KEF) is about 40 km (25 miles) from Reykjavik, and getting there by bus can be quite expensive, especially for families or groups. In many cases, renting a car is actually more affordable.

The weather in Iceland can also be unpredictable, with strong winds, rain, or snow even in the summer. That's why locals often say that a car is the “Icelander's coat.” It keeps you warm, dry, and mobile when walking or waiting for buses just isn’t practical.

If you have any questions, Contact Us and we will get back to you within 24 hours.

You’ll need a valid driver’s license, a passport or national ID, and a credit card (or eligible debit card) in the main driver’s name. Some suppliers may require you to have held your license for at least 12 months.

Cost of renting a car in Iceland with Northbound will typically range from $27/day to around $150/day, depending on vehicle type, season, and availability. Early booking usually guarantees the lowest rates. Let us know if you find a lower price else where and we will match it with our price match guarantee promise.

Yes, cars booked through Northbound include unlimited mileage, so you can explore the country without worrying about extra fees for distance.

It depends on the supplier. Some offer after-hours pickup, often with a key box or shuttle service, while others don’t allow it at all. In some cases, there may be an extra fee. When booking through Northbound, you’ll see each supplier’s pickup options clearly listed, so you can choose what works best for your arrival time.

You can rent a car at KEF Airport by booking online through Northbound. We let you compare prices from both local and major suppliers with pickup options directly at the airport or via shuttle. Just choose “Keflavik Airport” as your pickup location during booking. All rentals include free cancellation, full pricing transparency, and a price match guarantee.

No, you can't drive on F-roads with a regular (2WD) car in Iceland. F-roads are mountain roads with rough surfaces, loose gravel, and sometimes river crossings. Only 4x4 vehicles are allowed by law. If you drive a regular car there, you risk fines, damage that insurance won't cover, and getting stuck. If you're heading into the Highlands in Iceland, make sure to rent a 4x4.