Best Budget Hotels in Iceland — Biggest Selection & Lowest Prices Guaranteed

Budget hotels in Iceland make it possible to experience the country's glaciers, geothermal pools, and volcanic highlands without overspending. Iceland has a reputation for high prices, but a growing number of affordable properties across the country keep nightly costs manageable.

Cheap hotels in Iceland range from compact accommodations in Reykjavik to family-run countryside stays near waterfalls, black sand beaches, and remote fjords.

Every hotel on this page falls under 150 USD per night during standard booking periods. That sits well below Iceland's mid-range average of 180 USD to 250 USD per night, and it reflects properties that deliver genuine comfort and cleanliness at rates that respect your travel budget. 

Budget hotels in Iceland typically include free Wi-Fi, complimentary breakfast, and free parking. Many sit along popular driving routes like the Ring Road and the Golden Circle, making them practical overnight stops for self-drive tours covering long distances.

In Reykjavik, budget options range from compact downtown hotels within walking distance of Laugavegur Street to larger properties on the edge of the city center that trade proximity for lower rates and free parking.

Best Budget Hotels in Reykjavik

Reykjavik has the widest selection of affordable hotels in Iceland, and for most travelers, the capital is where the trip begins and ends. Cheap hotels in Reykjavik tend to cluster in two zones: the walkable downtown core around Laugavegur, where you trade space for location, and the neighborhoods just outside the center, where you get more room, free parking, and lower nightly rates.

• Hotel Muli — A popular hotel near Laugardalur, a residential area in east Reykjavik, about 10 minutes from downtown Reykjavik by car or bus.

• ODDSSON Midtown Hotel — A modern hotel in Skeifan, a commercial area in east Reykjavik, about 10 minutes from downtown by car or bus.

• Hotel Cabin — A budget hotel near the waterfront east of the city center, a 20-minute walk from downtown, with simple rooms and sea views from top floors.

• CityHub Reykjavik — A compact, design hotel on Hverfisgata in central Reykjavik, just off Laugavegur and within easy walking distance of the main sights.

• Alva Hotel Brautarholt — A simple but modern self-check-in hotel just off Laugavegur, about a 15 to 20-minute walk from downtown Reykjavik.

• Hotel Fron — A casual boutique hotel right on Laugavegur, putting you in the middle of Reykjavik’s shops, restaurants, and nightlife.

• Midtown Hotel — A modern self-check-in hotel right in downtown Reykjavik, near Laugavegur, surrounded by bars, restaurants, and live music venues.

• Hotel Leifur Eiriksson — A classic central hotel opposite the iconic Hallgrimskirkja, with Laugavegur and many of Reykjavik’s main attractions just a short walk away.

• Hotel Lotus — A small, quiet hotel in a residential part of east Reykjavik, about 5 to 10 minutes from downtown by car, and with good bus connections to the city center.

Best Budget Hotels Near Keflavik Airport

These hotels near Keflavik International Airport suit travelers with early morning flights or late arrivals, with rates that reflect their practical, transit-focused value.

• Hotel Duus — Perched above a small harbor in Keflavik with Atlantic Ocean views, this small hotel is about a 25-minute drive away from the Blue Lagoon.

• Hotel Island – Comfort — Located in Kopavogur, a suburb just south of Reykjavik, this hotel offers a convenient and more affordable alternative to city-center accommodations.

• Hotel Heidmork — Another Kopavogur option, Hotel Heidmork makes it easy for travelers to reach both the airport and the city center.

Best Budget Hotels on Iceland's South Coast and Golden Circle

The South Coast and Golden Circle are Iceland's most popular driving routes. These budget Golden Circle hotels provide affordable overnight stops near major attractions like Thingvellir National Park, Geysir, Gullfoss, and the waterfalls and black sand beaches of the south.

• Hotel Ork — Located in the geothermal village of Hveragerdi, about 45 minutes from Reykjavik, Hotel Ork offers an outdoor swimming pool and hot tubs fed by natural hot water. 

• Hotel Laugarvatn — Positioned on the Golden Circle between Thingvellir and Geysir, this hotel offers one of the most affordable overnight options along Iceland's most popular sightseeing route. 

Best Budget Hotels in North Iceland

North Iceland's attractions include whale watching in Husavik, the Myvatn geothermal area, and Akureyri, the capital of the north. These budget-friendly North Iceland hotels offer practical bases for exploring the region.

• Sel-Hotel Myvatn — This family-run hotel sits right beside Lake Myvatn, a 2-minute walk from the Skutustadagigar Pseudo-Craters. The Myvatn Nature Baths are a 20-minute drive away.

• Hotel Dalvik — Situated in the small fishing village of Dalvik, this hotel offers a quieter alternative to Akureyri, with the surrounding area known for excellent skiing in winter and hiking in summer.

• Centrum Hotel — Right in the center of Akureyri, this hotel is within walking distance of restaurants, shops, and the Akureyri swimming pool. 

• Hotel Kjarnalundur — Set just outside Akureyri in a wooded area near the Kjarnaskogur Forest, this hotel trades a town-center location for a peaceful natural setting with lower rates. 

• Hotel Skulagardur — This hotel works well for travelers joining whale watching tours or using Husavik as a Diamond Circle base.

Best Budget Hotels in East Iceland and the Eastfjords

East Iceland hotels reward travelers with dramatic fjords, remote valleys, and a more tranquil experience. Budget options here tend to be smaller, family-run properties with a personal touch.

• Arnanes Country Hotel — Located between Hofn and the Jokulsarlon Glacier Lagoon, this countryside hotel puts guests within reach of southeast Iceland's most spectacular scenery. 

• Hotel Valaskjalf — Situated in Egilsstadir, the largest town in East Iceland, this hotel serves as a convenient hub for exploring the Eastfjords.

• Hotel Post — This small countryside hotel in East Iceland offers affordable rates and a warm, personal atmosphere typical of rural Icelandic hospitality.

Best Budget Hotels in West Iceland and the Westfjords

Hotels in West Iceland give budget travelers access to waterfalls, fjords, and charming coastal towns. Accommodations in the Westfjords, a remote peninsula northwest of Iceland, provide a quiet base for exploring rugged coastlines, wildlife, and hidden villages. These budget-friendly stays serve as perfect bases for exploring West Iceland and the Westfjords.

• Fossatun Country Hotel — Set beside waterfalls in West Iceland near Reykholt, this countryside hotel is a popular choice among travelers looking for an overnight stop between Reykjavik and the Snaefellsnes Peninsula.

• Hotel Hafnarfjall — Located in the town of Borgarnes, about a 75-minute drive from Reykjavik, this hotel is well positioned for exploring West Iceland's historical and natural attractions. 

• Hotel Laxnes — Set in the Mosfellsdalur Valley just a 20-minute drive from Reykjavik, Hotel Laxnes provides easy access to hiking trails and the Laxness Museum.

• Fisherman Guesthouse Súdureyri — Tucked into the remote fishing village of Sudureyri in the Westfjords, this property places travelers deep into some of the country's most dramatic coastal scenery.

• Northwest Restaurant & Guesthouse — Located in Hvammstangi on the Vatnsnes Peninsula, this accommodation is ideal for travelers interested in seal watching or seeking a budget stopover between Reykjavik and Akureyri.

• Hotel A — Converted from an old farmstead between Reykholt and Husafell, Hotel A offers a low-key, easygoing atmosphere that appeals to travelers who want a genuine countryside experience at budget-friendly rates.

How to Find the Best Budget Hotels in Iceland

The key to affordable accommodation in Iceland is flexibility. Shoulder season travel (September to November or March to May) delivers the lowest rates, with many properties charging less than in June through August. Midweek stays are consistently cheaper than weekends.

For self-drive travelers, mixing Reykjavik stays with countryside hotels along the Ring Road or Golden Circle spreads costs while adding variety to the trip. Hotels that include breakfast save you 15 USD to 25 USD per person per day, and kitchenettes cut meal costs even further in a country where restaurant dining is expensive.