Planning a holiday in Iceland often starts with big experiences, but accommodation costs can shape the entire trip. While prices are generally high, there are still practical ways to reduce expenses by choosing the right budget hotels in Reykjavik and accommodations around Iceland, especially when you know where budget-friendly options are realistically available.
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Many travelers base themselves in the capital area and join tours from Reykjavik to explore the country, while others rent a cheap car and follow the Ring Road. Both approaches can work on a limited budget, as Iceland offers a range of hostels, guesthouses, and cheap hotels that help keep nightly costs manageable without sacrificing location or comfort.
This guide highlights affordable places to stay across key regions and shares simple strategies for saving on lodging. Travelers booking through Guide to Iceland will also gain access to the VIP Club, which includes small discounts at selected restaurants, cafes, and shops. Now, let's look at the top 10 cheap places to stay while visiting Iceland.
Key Takeaways
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Iceland offers a wide range of cheap places to stay, including hostels, guesthouses, and budget hotels across Reykjavik and the Ring Road.
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Reykjavik is the most popular base, with well-located options offering affordable stays and easy access to city attractions and tours.
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Staying outside the city center or in smaller towns can significantly lower accommodation costs without limiting access to major sights.
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Booking early and traveling outside peak season helps secure better prices on accommodation, tours, and transport.
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Travelers booking through Guide to Iceland can use VIP Club access to save money at selected restaurants, cafes, bars, and shops during their trip.
10. Hotel Muli (Reykjavik)
Hotel Muli is a solid choice for travelers searching for budget hotels in Reykjavik that offer good value without staying right in the city center. Located near Laugardalur Park, the hotel offers easy access to swimming pools and local services, with central Reykjavik reachable by car or public transport.
The quieter setting makes Hotel Muli especially suitable for travelers who prefer a calm place to stay after full-day sightseeing tours. It works particularly well for those with a rental car, thanks to easy parking and quick access to main roads. Family rooms, self-check-in, and an on-site cafe offering breakfast add to its practicality for both short and longer stays.
Hotel Muli works well for travelers planning day trips from Reykjavik, with easy road access to popular routes such as the Golden Circle and the South Coast.
9. Nordurey Guesthouse and Nordurey Hotel City Garden (Reykjavik)
Nordurey Guesthouse and Nordurey Hotel City Garden are two affordable places to stay in Reykjavik, each suited to a different travel style.
Nordurey Guesthouse is located within walking distance of downtown Reykjavik and works well for travelers who want to stay close to major sights. Rooms are simple and comfortable, with shared bathrooms and access to a communal kitchen, helping keep costs low. Popular landmarks such as Hallgrimskirkja Church are nearby, making it a practical base for exploring downtown on foot.
Nordurey Hotel City Garden, on the other hand, is situated in the quieter Laugardalur Area and offers private, modern rooms in a residential setting. The neighborhood is well-suited for walks and provides a calmer atmosphere, with a small garden on-site where guests can relax after a full day of sightseeing in Reykjavik.
Both options provide affordable options for hotels and guesthouses in Reykjavik, allowing you to choose between a central location or a more peaceful neighborhood without stretching your budget.
8. Akureyri Backpackers (Akureyri)
Akureyri Backpackers is a practical choice for travelers looking for budget accommodation in North Iceland while staying right in the center of Akureyri. Located on Hafnarstraeti, the town’s main street, it sits within walking distance of shops, top restaurants, cultural sites, and the harbor, where whale-watching tours often depart.
The hostel offers a mix of dorms and private rooms, making it suitable for solo travelers, groups, and families. Shared kitchens help keep costs low, while the on-site café and bar stand out as one of the best brunch spots in Akureyri. A sauna is also available, providing a relaxing option after a day of excursions in Iceland.
Akureyri Backpackers works well as a base for day trips from Akureyri, with easy access to the Diamond Circle, Lake Myvatn, and other must-see destinations in North Iceland.
7. Hafnarstræti Hostel (Akureyri)
Hafnarstraeti Hostel is located in the northern town of Akureyri and offers an ideal blend of comfort, affordability, and a bustling social environment. Located on one of the town’s main streets, it offers easy access to shops, restaurants, and cultural attractions, including Akureyrarkirkja Church, Hof Cultural and Conference Center, and Akureyri Botanical Gardens.
The hostel features capsule-style sleeping pods in mixed dorm rooms, available in single and double sizes. These provide more privacy than standard bunks while keeping costs low. Outside the pods is a communal area with a kitchen, multiple bathrooms with showers, and a relaxing lounge.
Akureyri’s location makes the hostel a practical base for exploring North Iceland. Many popular activities in Akureyri, as well as nearby highlights such as Godafoss Waterfall and the Diamond Circle, are easy to reach by car.
6. Dalahyttur Lodges (West Iceland)
Dalahyttur Lodges is a hidden gem that sits amid the wide, open landscapes of West Iceland. It offers budget-friendly cabins and rooms for travelers who want space, scenery, and a quieter place to stay. The setting gives the lodges a rustic feel, while still providing the comfort needed after long days of exploring.
Located close to the Snaefellsnes Peninsula, the lodges make it easy to reach many of the region’s best-known sights or take part in guided Snaefellsnes tours. Nearby highlights include Eldborg Crater, the seal-watching beach at Ytri Tunga, and coastal villages scattered along the peninsula. The location also works well for travelers continuing to explore West Iceland or planning tours in the Westfjords.
Accommodation options range from simple cabins with kitchenettes to rooms with shared facilities, all with countryside views and free parking. Dalahyttur Lodges are best suited for travelers seeking solitude and a strong connection to Iceland’s landscapes.
5. Hotel Dalvik (North Iceland)
Hotel Dalvik is a flexible option for travelers looking for budget-friendly stays in North Iceland that suit different budgets and group sizes. It’s one of the more practical accommodations in Dalvik, set along the coast of Eyjafjordur with easy access to local services and a short driving distance to Akureyri.
The area is well known for whale watching, especially in summer, making the hotel a good base for wildlife-focused trips. It also works well for exploring North Iceland, with Godafoss waterfall and the Diamond Circle route reachable by car, along with the Lake Myvatn Area and nearby geothermal areas.
Accommodation ranges from shared dorm rooms to private rooms. Bungalow-style options, similar to cottages in Dalvik, are also available for travelers who want more space and independence. These units include their own kitchen and living area, making them a practical choice for families or longer stays. Shared kitchens, free Wi-Fi, parking, and breakfast help keep overall costs manageable.
4. Hafaldan HI Hostel | Old Hospital (East Iceland)
Hafaldan HI Hostel | Old Hospital is one of the more budget-friendly accommodations in Seydisfjordur, a town known for its character and location in East Iceland. Set in a former hospital building, it combines a sense of history with modern comfort, placing guests within easy reach of several places to visit in East Iceland right from the village center.
Seydisfjordur sits slightly off the Ring Road, which helps keep the area quieter than other parts of the country. From here, travelers can easily reach nearby highlights such as Egilsstadir and the Vok Baths, along with lesser-visited Eastfjords landscapes. Shops, cafes, and basic services are all within walking distance.
The hostel offers a mix of private rooms, family rooms, and dorm-style accommodation, making it suitable for different budgets and group sizes. Guests have access to shared kitchens, comfortable common areas, free Wi-Fi, and a small on-site sauna, a rare bonus among budget stays in Iceland.
3. The Barn (South Iceland)
The Barn is a charming and budget-friendly accommodation located on the South Coast of Iceland, close to the village of Vik. This rustic but modern hostel offers family rooms with bunk beds that can accommodate larger groups and double rooms for those seeking more privacy.
One of the main advantages of staying at The Barn is its location along the Ring Road, which makes it a convenient stop for South Coast travel. The Reynisfjara Black Sand Beach is just a short drive away, while well-known sights such as Skogafoss and Seljalandsfoss are also easy to reach by car. The area around Vik provides access to shops, services, and several nearby natural landmarks.
With its welcoming atmosphere, shared facilities, and well-placed location, The Barn is a practical choice for travelers looking for an affordable base while exploring Iceland’s South Coast.
2. Hotel Cabin (Reykjavik)
Hotel Cabin is a reliable option for travelers looking for the best hotels in downtown Reykjavik that balance comfort and location. Set slightly outside the busy city center, it offers a quieter stay while still being within easy walking or bus distance of downtown Reykjavik.
The hotel provides a range of room types to suit different budgets, from compact standard rooms to larger options with added comfort. All rooms include private bathrooms and flat-screen TVs, keeping things simple and functional. Free Wi-Fi, parking, and a daily breakfast buffet add extra value for budget-minded travelers.
Hotel Cabin is located near Laugardalur, Reykjavik’s main recreational area, home to Laugardalslaug Swimming Pool, Reykjavik Botanical Garden, and the Reykjavik Family Park & Zoo. With tour pick-ups nearby and easy road access for day trips, it works well as a practical base for exploring Reykjavik and nearby attractions.
1. Kex Hostel (Reykjavik)
Housed in an old biscuit factory in the heart of Reykjavik, Kex Hostel is one of the best choices for budget-conscious travelers visiting Iceland. Known for its industrial yet cozy design and lively atmosphere, it stands out among hostels in Reykjavik for its strong local character and social scene.
Kex is located by the Reykjavik seafront, close to the city's biggest attractions, such as Hallgrimskirkja Church and Harpa Concert Hall. The city's main shopping street, Laugavegur, is just around the corner, placing many activities in Reykjavik, along with restaurants, bars, and shops, right outside the door.
The hostel offers a mix of dorm beds and private rooms to suit different budgets, along with amenities like a communal kitchen, laundry facilities, a gym, and a library. More than just a place to sleep, Kex Hostel is a lively social hub with regular live music, events, and some of the most affordable beer in the city, earning recognition as one of the best live music venues in Iceland.
For those seeking a budget-friendly stay without compromising on atmosphere, fun, and convenience, Kex Hostel is a solid choice.
Other Ways to Save Money When Visiting Iceland
Beyond choosing affordable accommodation, there are several simple ways to save money in Iceland while planning your trip. Small choices around food, timing, and discounts can noticeably reduce daily expenses without limiting what you see or do.
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Book early and travel outside peak season: Book your accommodation, tours, and flights to Iceland well in advance, especially outside the busy summer months.
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Use discounts and special offers: Travelers booking through Guide to Iceland can access VIP Club access, which includes discounts at selected restaurants, cafes, bars, and shops, including affordable restaurants in Reykjavik and places for cheap beers and bars in Reykjavik.
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Buy alcohol at the airport: The duty-free store on arrival at the Keflavik Airport offers lower prices than shops and bars in Iceland. This is convenient for travelers staying at hotels near Keflavik Airport before continuing their trip.
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Consider a 24-hour Reykjavik City Card: Useful if you plan to visit museums, pools, or use public transport within the city.
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Prepare your own meals and skip bottled water: Many budget accommodations offer shared kitchens, and Iceland’s tap water is safe to drink everywhere.
FAQs on Cheap Places to Stay in Iceland
Here are answers to the most frequently asked questions about cheap places to stay in Iceland.
How much does it cost to stay in Iceland?
The cost of a night's stay in Iceland can vary greatly depending on the type of accommodation, the location, and the time of year. While there are a lot of variables, you should expect to have to pay 100 to 150 dollars per night at a minimum. If you book ahead of time and do some research, you can definitely find cheap accommodation in Iceland.
Is it cheaper to stay outside Reykjavik?
Yes, there are places in Iceland that can be less expensive to visit compared to Reykjavik, which as the capital and largest city, can be more costly due to its concentration of tourist attractions, dining, and accommodation options. Towns outside of the capital area, such as Akureyri and Selfoss, will be generally less expensive to stay in.
Where do most people stay in Iceland?
Most people stay in Reykjavik, as it offers the widest range of accommodations and easy access to tours, public transport, and services. The city works well as a base for short stays and day tours, especially for travelers without a rental car. Others choose to stay along the Ring Road or in towns like Akureyri when exploring more of the country, but Reykjavik remains the most common place to stay in Iceland.
Which part of Iceland is best to stay in?
The best part of Iceland to stay in largely depends on your interests, as each region offers its unique attractions. Reykjavik is the country's cultural hub, with numerous museums, restaurants, and nightclubs.
If you're interested in natural wonders like waterfalls, glaciers, and black sand beaches, towns on the South Coast, such as Vik and Selfoss, are great options. If you're a fan of diverse landscapes, you might want to consider staying on the Snaefellsnes Peninsula.
Are there cheap places to stay in Iceland for families?
Yes, there are cheap places to stay in Iceland for families, especially in guesthouses, hostels with family rooms, and budget hotels offering larger rooms or cabins. These options often provide more space and shared kitchens, which can help reduce food costs.
Staying outside city centers or in smaller towns along the Ring Road usually lowers accommodation prices while still allowing easy access to attractions. Booking early also helps families secure better rates and more suitable room options.
Best Cheap Places to Stay in Iceland
Finding the best cheap places to stay in Iceland comes down to choosing accommodation that matches your travel style and itinerary. Reykjavik works well for travelers joining guided tours or short excursions in Iceland, while guesthouses and hostels around the country offer better value for those planning longer routes.
If you’re traveling independently, budget stays along the Ring Road are ideal for self-drive tours in Iceland, giving easy access to some of the top tour destinations in Iceland without returning to the capital each night. Whether you prefer a social hostel, a simple guesthouse, or a private cabin in the countryside, planning ahead and staying flexible makes it easier to keep costs down while seeing more of the country.
That concludes our guide to the top 10 cheap places to stay in Iceland. Did we leave any of your questions unanswered? Do you have any stories of staying in budget accommodation during your visits to Iceland? Let us know in the comments below!
