There are three things you need to consider when choosing a rent a car for your travel in Iceland. The roads to the places you intend to visit, the time of year when visiting and the weather. Renting a car and driving around the country is by far the best way to travel in Iceland. By hiring a car people taking a trip to Iceland can choose a road trip that fits their budget and schedule. This way they have the flexibility and independence required in a country with many natural wonders to explore and admire. With a car and a driving plan, you can always take your time, and you can easily modify and change your route.
A small car is fine for most roads, during summer
For most of the main roads, a small 2WD car is a good option. It is the cheapest way to drive around Iceland in a car. A small car like VW Polo, Toyota Yaris or Suzuki Swift that fits four people conveniently. During summer a small car will take you to most of the interesting places, natural wonders and accommodation of your choice. A small car is also fine on the gravel roads during summer, especially if you have a front wheel drive, which most Icelanders prefer. But keep in mind that gravel roads are more demanding to drive and take caution and drive slower than on asphalt roads. In winter you can also travel the main roads in a small car on roads like the Reykjanes Peninsula drive, the Ring Road, The Snæfellsnes Peninsula drive, The Westfjord drive, and the Golden Circle. But from October until April it is necessary to follow the weather forecast and road conditions before you start your trip, especially if yo are in a small car. If you want to increase your comfort, a midsize car is a better choice during winter, much better and highly recommended for most places and most drives.
A larger vehicle is better outside the main roads and during winter
If you decide to travel to places outside the main roads, you are much better off to hire a midsize car, preferably a SUV or a 4WD car like VW Tiguan, Toyota Raf, and Suzuki Vitara. This applies to people that are interested in taking loops and exploring places outside the main road. People that want to visit places like Mjóifjörður, Látrabjarg in the West Fjords, Rauðisandur in the West Fjords, the Vatnsnes Peninsula or some of the waterfalls natural wonders that are not near the main road. The roads outside the main roads are most often gravel roads, go over steep mountain passes and conditions change in rain and snow. For those roads, a vehicle with more space and larger tires is much better for your comfort and security. This is especially important during winter.
A 4WD is mandatory for the Highland roads in Iceland
A small car will not get you to the Highland if you choose to travel to the exotic part of the country. The Highland requires a 4WD vehicle, but keep in mind that the Highland is only open from the beginning of July until the middle of September. Most of the roads in the Icelandic Highland are challenging and rough gravel roads often with many rivers to cross. No one should enter a Highland Road in a small car or a midsize car or a car that doesn't have a 4WD. It is simply dangerous, irresponsible and can severely damage the vehicle and even ruin it if stuck in a river. It can also be dangerous as a 2WD car can easily become stuck on a difficult road in the Highland. Few Icelanders would ever take such a risk based on their knowledge about the Highland. Not to mention the danger to the passengers. But for the Highland roads a 4WD only is not alway enough. For many rugged roads and tracks in the Highland a large and well-equipped 4WD / 4X4 vehicle is required. For these roads, a Toyota Land Cruiser, Jeep, Toyota Hilux, Ford F150 or a similar vehicle is highly recommended for your convenience and security.