Buying a Car in Iceland
Considering buying a car in Iceland? Read our comprehensive guide for insights to understanding the car market and making an informed decision.
Buying a Car in Iceland
Considering buying a car in Iceland as a foreigner? This guide covers everything: choosing the right vehicle, registering it in your name, understanding insurance, and budgeting for the real costs of car ownership.
Why You Might Need a Car in Iceland
If you're already living in Iceland, you likely know this already: public transport works reasonably well within the Reykjavík capital area, but it has limits. Buses stop running relatively early, routes outside the city center are infrequent, and if you live anywhere beyond the greater Reykjavík area, a car goes from nice-to-have to essential. A car changes how you experience daily life here, from commuting to a job in Hafnarfjörður to doing a grocery run at Bónus to exploring the countryside on weekends.
At the end of this article, you'll find a list of car dealerships in Iceland to help you get started.
New vs. Used: Which Makes Sense for You?
One of the first decisions you'll face is whether to buy new or used. Both options are common in Iceland, and both have clear trade-offs.
Buying New
New cars in Iceland are expensive. Import duties and taxes push prices well above what you'd pay in most of mainland Europe for the same vehicle. That said, you get a full manufacturer warranty, no history to worry about, and dealerships that handle all the paperwork for you. Over 14,500 new cars were registered in Iceland in 2025, so there's no shortage of options on dealer lots. Most dealerships offer financing, though you'll typically need to have lived in Iceland for a while and built up some credit history first.
Buying Used
Used cars are the more practical choice for most newcomers. They're more affordable upfront, and financing is generally available for used vehicles as well. The used car market in Iceland is active. You can find cars listed for as little as 300,000 ISK or even less, but at that price point, expect the vehicle to need repairs at its next service inspection, which could run anywhere from 50,000 to 250,000 ISK or more. A reasonable budget for a used car that won't give you immediate headaches starts around 500,000-1,000,000 ISK for a basic city car, going up to 3,000,000-6,000,000 ISK for a well-equipped SUV.
Where to Find Cars for Sale
Unlike many countries where a single platform dominates, car shopping in Iceland is spread across several channels.
Bílasölur.is is the largest used car aggregator in Iceland and the closest thing to a one-stop shop. Most dealerships and many private sellers list here. The site is primarily in Icelandic, but the information is standard enough to figure out: tegund means make/model, ár is year, ekinn is mileage in kilometers, and verð is price.
Bland.is is Iceland's general classifieds site (think Craigslist), where private sellers frequently post vehicles.
Facebook groups are surprisingly active for car sales. Search for "bílar til sölu" or English-language expat groups where cars are regularly listed. Be cautious with private sales on Facebook though, since there's less buyer protection than going through a dealership.
Dealerships offer the smoothest experience, especially if you're new to the country. They handle paperwork, often provide some form of warranty, and can guide you through the process. Many used car dealerships are clustered in the Klettháls/Sævarhöfði area of Reykjavík.
Keep scrolling towards the end of this article to see a large list of car dealerships in Iceland
The Step-by-Step Buying Process
Step 1: Get Your Kennitala
Before you can buy, register, or insure a car in Iceland, you need a kennitala, Iceland's national identification number. There are no exceptions to this. If you don't have one yet, apply through Registers Iceland (Þjóðskrá) before you start car shopping.
Step 2: Research and Browse
Browse listings on Bílasölur.is and dealership websites to get a sense of what's available and at what price. Pay attention to the vehicle's inspection sticker date (more on that below), mileage, and whether winter tires are included. A set of quality winter tires can easily cost 80,000-150,000 ISK.
Step 3: Test Drive and Inspect
Always test drive. For used cars, especially anything over 2,000,000 ISK, it's worth having a mechanic do an independent inspection. Check the vehicle's history through the Samgöngustofa vehicle registry, where you can look up basic information including the next inspection date using the license plate number. You get up to five free detailed searches per day.
Step 4: Negotiate
Negotiation is normal and expected in Iceland, particularly for used cars. The listed price is typically a starting point. A reasonable offer of 5-10% below asking price is standard practice, and most sellers anticipate this.
Step 5: Transfer Ownership
Once you agree on a price, the seller initiates the ownership transfer online through the Icelandic Transport Authority (Samgöngustofa) at island.is. This can be done on the spot: the seller starts the transfer, and you complete it digitally. Make sure the car has no outstanding debts or unpaid fees before finalizing. A change of ownership cannot be completed if there is a negligence charge (vanrækslugjald) on the vehicle.
Payment is almost always done by bank transfer. Cash transactions are uncommon for large purchases in Iceland.
Step 6: Choose Insurance
During the ownership transfer process, you'll be asked to select an insurance company. You must have at least mandatory insurance (see below) before you can legally drive the car. This is built into the registration flow, so you'll want to have already compared quotes and decided on a provider beforehand.
Understanding Car Insurance in Iceland
Car insurance is mandatory, and you'll select your insurance provider as part of the registration process when the car is transferred to your name. For a more detailed breakdown, see our complete guide to car insurance in Iceland. Below is a summary.
Mandatory Insurance (Lögboðin trygging)
Every vehicle in Iceland must carry mandatory vehicle insurance, which consists of two components: third-party liability insurance (ábyrgðartrygging), covering damage you cause to other people or property, and driver and owner accident insurance, compensating for personal injuries to the driver. Windscreen insurance is also included by default unless you specifically opt out.
Optional but Recommended: Kasko (Collision Insurance)
Collision insurance, known as kaskótrygging, covers damage to your own vehicle. It's optional but very much worth getting, especially if your car has any real value. Without it, you're paying for all repairs yourself, and repair costs in Iceland are not cheap.
What About Gravel and Sand Damage?
Standard kasko policies in Iceland exclude damage caused by loose earth materials like sand, gravel, or soil. They also exclude paint damage from stones kicked up off the road. You may have seen "Sand and Ash Protection" (SAAP) or "Gravel Protection" marketed online, but those are add-on products for rental cars, not something available to private car owners. If sand or gravel damages your paint or bodywork, that repair is on you. Windscreen damage is covered separately under the glass insurance (rúðutrygging) included with your mandatory policy. Before driving into exposed areas, check conditions on vedur.is and road.is.
Insurance Providers and Costs
The main insurance companies in Iceland are VÍS, Sjóvá, TM, and Vörður. Expect to pay between 120,000 and 260,000 ISK per year depending on the level of coverage, the car's age and value, and your driving history. Most insurers offer monthly installment payments. Shopping around and comparing quotes from at least two or three providers is worthwhile, since pricing can vary a lot.
The Real Costs of Owning a Car in Iceland
The purchase price is just the beginning. Here's what you should budget for as a car owner in Iceland.
Fuel and the 2026 Road Usage Tax
As of January 1, 2026, Iceland replaced its old fuel excise taxes with a new kilometer-based road usage tax (kílómetragjald) that applies to all vehicles. Pump prices dropped by roughly 90 ISK per liter as a result, but you now pay a separate road fee based on actual kilometers driven. For private car owners, the tax is calculated from odometer readings logged at least once per year. The net cost of driving is roughly similar to before; it's just split differently now.
Current fuel prices at the pump sit around 190-215 ISK per liter for petrol, well below the 300+ ISK range of previous years, though the road tax makes up the difference. You can check real-time fuel prices at gasvaktin.is.
Vehicle Inspection (Skoðun)
All registered vehicles in Iceland must pass periodic safety inspections. The schedule follows a 4-2-2-1 pattern: a new car gets its first inspection after 4 years, then every 2 years until the car is 8 years old, after which it's inspected annually. You can check when your car's inspection is due by looking at the sticker on the license plate. The last digit indicates the month.
Missing your inspection results in a 20,000 ISK negligence fee, and the police can remove your plates. If the car fails inspection, you have until the end of the following month to fix the issues and re-inspect. A failed vehicle that's deemed unsafe to drive gets a red "akstur bannaður" (driving prohibited) sticker and must not be driven until repaired.
Annual Vehicle Tax (Bifreiðagjöld)
Vehicle owners pay ownership tax twice a year, based on the vehicle's weight and CO₂ emissions. For most passenger cars, expect to pay between 20,000 and 60,000 ISK per six-month period. EVs pay a lower rate. This is billed automatically and can be paid online.
Maintenance and Winter Preparation
Iceland's climate is hard on cars. Budget for regular servicing, and remember to account for winter tires if the car doesn't come with them. In the capital region, non-studded winter tires or all-season tires are encouraged to reduce road wear, though studded tires are allowed during winter months. Outside the capital area, studded tires are more common and advisable. Many drivers keep two sets of tires (summer and winter) and swap them seasonally, which also means needing storage space or paying a shop for the changeover.
Electric Vehicles
Iceland is one of the world's leading EV markets. In 2025, roughly 41% of all new car sales were fully electric, and the country's grid runs on nearly 100% renewable energy (hydro and geothermal), making EVs an environmentally and economically logical choice.
Current Incentives (2026)
EV incentives in Iceland have changed quite a bit recently. The VAT exemption that previously applied to EVs was revoked at the start of 2024. Buyers can still apply for a grant from the Energy Fund (Orkusjóður) for the purchase of an electric vehicle. As of January 1, 2026, the grant for new passenger cars is 500,000 ISK (reduced from 900,000 ISK in 2024-2025). Used imported EVs registered in Iceland within 12 months of their first foreign registration qualify for 400,000 ISK. The 10,000,000 ISK purchase price cap still applies. You apply digitally through island.is.
EVs are subject to the kilometer-based road tax at 6 ISK per kilometer (plug-in hybrids at 2 ISK/km). Even with these charges, the overall running cost of an EV remains lower than a comparable petrol or diesel vehicle, thanks to Iceland's cheap electricity.
Charging Infrastructure
Iceland has hundreds of public charging stations, with the network growing steadily as providers like ON Power, Ísorka, N1, and Tesla expand coverage. The standard connector is Type 2 (Mennekes) for AC charging and CCS Combo 2 for DC fast charging. Coverage is solid around the capital area and along the ring road, with DC fast chargers spaced roughly every 100 km on Route 1. It thins out in the Westfjords and remote highlands, where EVs are not practical. If you live in an apartment building, Icelandic law (since 2020) gives apartment owners the right to install EV charging stations in their complex. The City of Reykjavík has previously offered grants to multi-apartment buildings for charging infrastructure, though funding has been fully allocated and renewal has not been confirmed.
Financing a Car Purchase
If you've recently arrived in Iceland, financing options may be limited. Icelandic banks typically require you to have established residency, a kennitala, and some credit history before they'll approve a car loan. The longer you've been here and the more financial footprint you've built (salary deposits, utility payments, etc.), the easier it becomes.
Many dealerships offer their own financing arrangements, which can sometimes be more accessible for newer residents than going directly to a bank. Interest rates and terms vary, so compare offers carefully. For used cars, financing is generally available through dealerships as well, though the terms may be slightly less favorable than for new vehicles.
If financing isn't available to you yet, buying a more affordable used car and upgrading later is a common and practical path that many newcomers take.
Car Dealerships in Iceland
Check multiple dealerships to compare prices, selection, and what kind of service or warranties they offer. Some specialize in imports, others in certified used vehicles. Many of them regularly work with people who are new to Iceland. While you can buy cars directly from owners using online classified sites or Facebook groups, going through a dealership often provides more peace of mind since you're working with professionals who can help with the process.
Here are some links to car dealerships in Iceland:
Frequently Asked Questions
Do I need a kennitala to buy a car in Iceland?
Yes. A kennitala is required to register a vehicle, purchase insurance, and complete the ownership transfer. There are no exceptions.
Can I use my foreign driver's license?
If you hold a valid license from an EEA/EU country, it's valid in Iceland. Licenses from the US, Canada, and many other countries are valid for temporary stays, but if you become a resident, you'll need to convert to an Icelandic license within six months.
How long does the buying process take?
If you're buying from a dealership and already have a kennitala, the process can be completed in a single day. The ownership transfer is done digitally and takes effect immediately.
Is it cheaper to import a car from Europe?
Usually not for personal use. Import duties can reach up to 30% of the vehicle's value, plus VAT on top. Combined with shipping costs, customs clearance, and the required pre-registration and inspection, importing rarely saves you money unless the car is unusual or has sentimental value.
What's the best time of year to buy?
Late spring and early summer tend to have the most inventory as people sell before summer travel season. Buying before winter means you'll need winter tires immediately, so account for that in your budget, or look for cars that already include a set.
Should I buy an EV?
If you have reliable access to charging (home charger, workplace charger, or nearby public station), an EV makes a lot of financial sense in Iceland. Electricity is cheap, maintenance costs are lower, and the road tax is comparable to petrol vehicles. The main thing to consider is whether charging infrastructure works for your specific living and commuting situation.
Ready to Get Started
Getting a car in Iceland takes some homework, but it's worth the effort. Once you have wheels, you'll have the freedom to get around on your own terms, from a daily commute to a spontaneous drive to a hot spring you've been meaning to visit. Do your research, don't be afraid to negotiate, and you'll find something that fits your needs and budget.
