Best Hostels in Iceland: Top Budget-Friendly, Social & Well-Located Stays

Are you planning a trip to Iceland and looking for budget-friendly accommodations? The best hostels in Iceland offer budget-friendly gateways to its dramatic landscapes, the iconic midnight sun phenomenon, and winter skies lit by the Northern Lights. From Reykjavik’s vibrant streets to the remote countryside, surrounded by waterfalls, glaciers, and volcanic landscapes, Iceland’s budget accommodations are one of the most effective ways to manage your expenses. Whether you’re chasing the Northern Lights or exploring the country on a budget, this Iceland accommodation guide unveils the best hostels that offer comfort and unforgettable views without breaking the bank.

Best Hostels in Reykjavik, Iceland

KEX Hostel Reykjavik – Iconic Social Hostel in the City Centre

KEX Hostel is the most iconic accommodation in Iceland and one of the best Reykjavik hostels. The hostel is set inside a converted biscuit factory. This is a 200-bed hostel that masterfully blends vintage industrial charm with warm hospitality. The accommodation options range from private rooms to family rooms. 

• Prices: Dorm beds start around Rs. 2,500 (4,200 ISK) per night, while private rooms range from Rs. 7,000-11,650 (12,000 to 20,000 ISK).

Loft HI Hostel Reykjavik – Best Backpacker Hostel Near Laugavegur

Loft HI Hostel ranks among the best Iceland backpacker hostels. Situated in the heart of Reykjavik on Bankastraeti, this hostel delivers exceptional value through its combination of central location, modern facilities and vibrant social scene. The hostel spans multiple floors with dormitories ranging from 4 to 8 beds. Female-only options provide additional security, while private rooms with en-suite bathrooms cater to those seeking more privacy. 

• Prices: Rs. 3,200 (5,500 ISK) for dorm beds and Rs. 8,200-13,000 for private rooms.

Bus Hostel Reykjavik – Best Budget Hostel with Free Transport Access

Bus Hostel earns its name through its strategic positioning next to Reykjavik’s main bus terminal. This recently renovated hostel offers modern comfort through its spacious dormitories ranging from 4-bed to 20-bed configurations. Bus Hostel’s standout feature is the complimentary Smart Bus pass included with every booking, providing free public transportation throughout your stay. The hostel offers maximum value to travellers and must be included in your budget travel to Iceland.

• Prices: Rs. 2,200 (3,800 ISK) for dorm beds and Rs. 5,500 (9,500 ISK) for private rooms.

Best Hostels in South Iceland Near Waterfalls & Black Sand Beaches

The Barn Hostel Vik – Best South Iceland Hostel for Northern Lights

The Barn represents one of the best hostels in Iceland. The destination is located in South Iceland, just 10 minutes by car from Vik village amid the region’s most dramatic landscapes. This rustic yet modern property strikes the perfect balance between budget accommodation and boutique experience, making it ideal for travellers seeking both affordability and atmosphere.

• Prices: Rs. 3,000 (5,000 ISK) for dormitory beds and Rs. 7,000-10,500 (12,000 to 18,000 ISK) for private rooms.

Best Hostels in North Iceland for Arctic Adventures

Akureyri Backpackers – Social Budget Hostel in North Iceland

Akureyri Backpackers dominates the Iceland budget accommodation list with its social atmosphere and central location. Set in Akureyri’s compact downtown, this three-floor property houses 103 beds across mixed dorms, female-only dorms and private rooms, ensuring options for every traveller type. The hostel prioritises social interaction through its ground-floor bar and restaurant, where travellers gather over locally-brewed beers and comfort foods like burgers and nachos. 

• Prices: Rs. 2,600 (4,500 ISK) in dorms and Rs. 6,500 (11,000 ISK ) for private rooms.

Hafnarstraeti Hostel Akureyri – Quiet & Comfortable Hostel in Akureyri

Hafnarstraeti Hostel is a quieter alternative among all the cheap hostels in Iceland.
This property attracts travellers seeking comfort and convenience without the party hostel atmosphere, making it ideal for digital nomads, mature backpackers and anyone prioritising good sleep over social scenes.

• Prices: Rs. 3,000 (4,800 ISK) for dormitory beds and Rs. 7,000-10,000 (12,000 to 16,000 ISK).

Best Hostel in West Iceland & Snæfellsnes Peninsula

The Freezer Hostel & Culture Centre – Unique Stay in Snæfellsnes

The Freezer Hostel delivers intimate experiences that make you feel like staying with friends rather than checking into institutional accommodation. The laid-back, artistic atmosphere attracts creative types and offbeat travellers seeking authentic connections. Regular programming includes film screenings, pub quizzes, live music performances and board game tournaments, creating entertainment options unusual for hostel accommodations.

• Prices: Rs. 2,300 (4,000 ISK) 

Conclusion: Finding the Best Budget Accommodation in Iceland

The best hostels in Iceland offer a sophisticated range of accommodation options, but without the need for luxury hotel budgets. From the KEX Hostel in Reykjavik, famous for its lively atmosphere, to The Barn’s dramatic access to black sand beaches and northern lights, Iceland budget accommodation maintains a balance between social atmosphere and budget-friendly pricing. Explore Pickyourtrail’s exclusive Iceland Tour Packages, where you can customise your itinerary based on your personal interests. Plan your budget travel to Iceland with us and lay the foundation for an unforgettable Icelandic journey.

Frequently Asked Questions About Hostels in Iceland

Are hostels in Iceland safe for solo travellers? 

Yes, hostels in Iceland are exceptionally safe for solo travellers. Iceland consistently ranks as one of the safest countries in the world, with extremely low crime rates. Most hostels feature 24-hour reception, secure lockers for valuables and keycard access systems. Female-only dormitories are widely available at properties like KEX Hostel and Loft HI Hostel for women seeking additional security.

How much does it cost to stay in an Icelandic hostel?

Iceland hostel prices vary by location and season. Dorm beds typically range from Rs. 2,200-3,200 (3,800 to 5,500 ISK) per night, while private rooms cost between Rs. 5,500-13,000 (9,500 and 22,000 ISK). Peak summer months (June through August) command higher rates, while shoulder seasons (May and September) offer better value. 

Do Iceland hostels provide free breakfast? 

Breakfast policies vary between hostels. Some properties like Start Hostel near Keflavik Airport include complimentary buffet breakfast with reservations, while others offer breakfast for an additional fee. KEX Hostel and Loft HI Hostel have on-site restaurants where you can purchase breakfast, though rates remain higher than self-catering. Most hostels feature fully-equipped communal kitchens where guests can prepare their own breakfast.

Can You See the Northern Lights from Icelandic Hostels? 

Yes. Hostels in remote areas like The Barn in Vik offer excellent northern lights viewing, and many hostels organise northern lights tours during winter months (September through April). However, Reykjavik-based hostels like KEX and Loft HI experience more urban light interference, though you can still see the aurora during strong displays. 

What amenities do Iceland hostels typically provide? 

Most Iceland hostels provide free Wi-Fi, communal kitchens with cooking equipment, shared bathrooms, luggage storage and common areas for socialising. Many offer laundry facilities, tour booking assistance and private room options alongside dormitories. Some upscale hostels like Loft HI and KEX feature on-site bars, restaurants and event programming. Power outlets at each bed, reading lights, and individual lockers have become standard at well-reviewed properties. Parking availability varies, with rural hostels typically offering free parking while urban properties may charge fees or have limited spaces.

Should you book hostels in Iceland in Advance? 

Advance booking is strongly recommended, especially during the peak summer season (June through August) when Iceland’s tourism industry operates at full capacity. Popular hostels like KEX and Loft HI sell out weeks or even months ahead for summer dates. Winter months (November through March) see less demand except around Christmas and New Year holidays. Booking 2 to 3 months ahead for summer travel and 3 to 4 weeks for winter stays ensures availability and often secures better rates. 

Are Iceland’s hostels suitable for families with children?

Yes, many Icelandic hostels welcome families and offer private family rooms. KEX Hostel, Loft HI Hostel and The Barn all provide family accommodations with multiple beds and private bathrooms. These rooms cost more than dormitories but remain significantly cheaper than hotel family suites. Hostels with communal kitchens particularly benefit families by allowing home-cooked meals that accommodate children’s preferences and dietary needs. Some properties, like Midgard Base Camp in South Iceland, specifically cater to families with amenities including playgrounds and family-friendly activities. However, families should note that common areas can be social and lively, which may not suit very young children.