My brother and I decided to go to Iceland for a little over one week, and because you can rent a car at 19 over there, we thought it would make for a fun road trip. I did a bit of research on what driving is like in Iceland as a foreigner, and since I saw no dire warnings and no list of deaths, I decided it would be fine for us to do so. We rented the car from a company called GuideToIceland.is that connected us with a fairly cheap and decent car managed by the company City Car Rental. We got to the car via shuttle from the airport and had a friendly local give us the lowdown on insurance, damage, etc. It cost us $357 for the week including theft and collision insurance. Considering we split the cost and never had a problem with the car, I consider that a pretty good deal.
Ricky was a small Suzuki Swift with a bit of scratches, but no major damage and very clean. I made sure to take pictures of every bit of damage, no matter how minor, so they could not charge us for it afterwards by claiming it was our fault. You never know. Ricky proved reliable and down for an adventure, as there was one time where we drove him down a road that was definitely meant for 4x4 vehicles, unbeknownst to us. We also (purposefully this time) took him up a steep mountainous path to try to get to a volcano. We ended up having to park him on the side and walk the rest of the way up because it was getting to be a bit sketchy at that point. Thankfully, the volcano and glacier covering it was worth it.
We passed many people that had rented camper vans of some sort and were doing their road trip that way. We decided to simply rent an Airbnb and travel from their. I am not sure if we saved any money this way, because campers tend to be much more expensive to rent and much less fuel efficient, but it would have been nice to not have to travel all the way back to Reykjavik every day. While we went in the summer, when temperatures still don't get above 60 Fahrenheit, I imagine that during the cooler months it would be even more comfortable to have an Airbnb rather than a camper, simply for warmth.
The most expensive thing about renting a car in Iceland was probably the gas we had to put in it. Most days we drove upwards of 3 hours, and though Richard had pretty good gas mileage, we were still stopping very often to refill and the prices mirrored those of Western Europe. We were paying about $6.50 per gallon, and I would estimate we spent over $200 in gas during the week, including the obligatory refill before you return the car.
We both agreed, however, that the egregious price of gas was totally worth it for the freedom of getting to be spontaneous during our trip, see the scenery, not be restricted to anyone else's itinerary, and being able to pull over randomly on the road when a photo op called to us. My biggest recommendation when renting a car in Iceland would be to rent the cheapest, smallest option that you and your crew can comfortably fit in.
Driving in Iceland was perfectly safe, quite enjoyable, and a unique adventure that both my brother and I truly loved. Though the price may be a bit daunting at first, the freedom to tailor your trip exactly how you want is absolutely priceless.