If you’re dreaming of chasing the Northern Lights and exploring Iceland’s incredible landscapes without overspending, Reykjavik is the perfect base. The city offers a unique mix of culture, adventure, and affordable stays, making it ideal for travelers seeking both comfort and savings. Whether you want to soak in a hot spring, take a Golden Circle tour, or enjoy cozy nights watching the aurora, there are plenty of budget hotels in Reykjavik that fit your plan.
Why Reykjavik is Great for Budget Travelers
Reykjavik might seem expensive at first glance, but it’s one of the most budget-friendly capitals in Northern Europe if you plan wisely. The city is compact, walkable, and full of affordable guesthouses and small hotels. From downtown hostels to apartment-style lodgings, you can find great deals, especially if you visit during the shoulder seasons of September–October or March–April.
The biggest advantage of staying in Reykjavik is convenience. Most adventure tours — like glacier walks, volcano hikes, and Northern Lights safaris — depart right from the city. You’ll also have access to supermarkets, cheap eats, and public transport that connects every part of town.
Top Areas to Stay in Reykjavik on a Budget
1. Downtown (101 Reykjavik)
The heart of the city is full of budget options. You can walk to restaurants, cafés, museums, and nightlife spots. Staying downtown may cost a little more, but you’ll save on transport.
2. Old Harbour & Grandi Area
This trendy, scenic area offers affordable boutique hotels and guesthouses close to whale-watching tours, the Saga Museum, and some of Reykjavik’s best seafood restaurants.
3. Vesturbær (West Town)
A peaceful residential neighborhood with cheaper accommodations and local bakeries. It’s only a short walk or quick bus ride to the city center.
4. Laugardalur Area
Famous for its outdoor swimming pool, parks, and family-friendly hostels. Ideal if you want green space and good public transport links.
Recommended Budget Hotels in Reykjavik
1. Reykjavik Downtown HI Hostel
A clean, cozy hostel just steps from the Old Harbour. Offers private and shared rooms, free Wi-Fi, and a communal kitchen — perfect for saving on meals.
2. Kex Hostel
Housed in an old biscuit factory, Kex offers a fun mix of modern design and affordability. Popular with young travelers and solo adventurers.
3. Galaxy Pod Hostel
A futuristic capsule-style hostel near Laugavegur. Each pod includes a small TV, light, and privacy screen — great value for solo guests.
4. Guesthouse Sunna
Across from Hallgrímskirkja Church, this guesthouse offers simple rooms with breakfast and easy access to downtown attractions.
5. Center Hotels Plaza
A budget-friendly 3-star option located in the heart of downtown Reykjavik, perfect for travelers wanting hotel comfort at a good price.
Adventure Awaits – Best Activities from Reykjavik
Even on a budget, Reykjavik puts Iceland’s famous adventures within easy reach:
Northern Lights Tours: Join affordable shared bus tours to dark rural areas — the best chances are between September and April.
Golden Circle Route: Visit Þingvellir National Park, Gullfoss Waterfall, and Geysir geothermal area in one day.
Blue Lagoon or Sky Lagoon: Both are reachable by shuttle — book tickets early to get the best deals.
Whale Watching: Depart from the Old Harbour for a 2–3 hour tour. Some companies offer discounts for morning trips.
South Coast Excursions: Budget tours take you to black-sand beaches, glaciers, and famous waterfalls like Seljalandsfoss.
For those staying longer, renting a small car for a few days can be cheaper than booking multiple tours. Iceland’s roads are safe and scenic, but always check the weather before driving.
How to Save Money While in Reykjavik
1. Cook Your Own Meals
Choose accommodations with kitchen facilities. Local supermarkets like Bónus and Krónan have affordable groceries.
2. Use the City Card
The Reykjavik City Card gives free entry to museums and public pools, plus unlimited bus travel. It pays for itself in two days.
3. Walk Everywhere
Most attractions are within walking distance. Reykjavik’s colorful streets are perfect for exploring on foot.
4. Book in Advance
Winter months can get busy with Northern Lights tourists. Early booking ensures better room rates and tour discounts.
5. Travel in Shoulder Season
Late September to early November or March to early May offer lower prices, mild weather, and still excellent chances to see the aurora.
When to See the Northern Lights
The Northern Lights season runs from September to mid-April, when nights are darkest. Reykjavik itself sometimes gets visible auroras, especially when solar activity is strong. However, joining a guided tour that goes into the countryside — away from city lights — dramatically improves your chances.
Try to stay at least 3–4 nights; clear skies and geomagnetic activity can vary, and longer stays increase your odds of catching a great display.
What to Expect from Budget Accommodation
Budget hotels and guesthouses in Reykjavik are simple, clean, and well-maintained. Many offer:
Free Wi-Fi
Shared or private bathrooms
Breakfast options
Tour booking assistance
Northern Lights wake-up calls
Don’t expect luxury, but do expect warmth, friendliness, and excellent service — Icelanders are known for hospitality.
Getting Around Reykjavik
Reykjavik’s city buses (Strætó) cover most routes and are easy to use with the app. Most Northern Lights and adventure tours include hotel pick-up and drop-off. Taxis are expensive, so public transport or walking are the best budget options.
From Keflavik International Airport, the Flybus or Airport Direct services are cheaper than taxis and drop you right in downtown Reykjavik or near your hotel.
Local Experiences Worth Trying
Visit Hallgrímskirkja: Take the elevator to the top for panoramic views.
Relax in local pools: Laugardalslaug is popular and affordable.
Sample Icelandic hot dogs: The famous Bæjarins Beztu Pylsur stand is a must-try.
Explore Harpa Concert Hall: Free to enter, with beautiful glass architecture.
Walk along the waterfront: See the Sun Voyager sculpture and Mount Esja in the distance.
These small experiences don’t cost much but give you a real feel of the city’s character.
Final Travel Tips
Always check the weather forecast — conditions change fast in Iceland.
Bring warm layers, waterproof jackets, and sturdy shoes.
Tap water is perfectly safe (and delicious), so skip bottled water.
Most people speak English fluently, so getting around is easy.
Credit cards are widely accepted; there’s rarely a need for cash.
Conclusion
Reykjavik offers the best of Iceland — culture, adventure, and natural beauty — without breaking your budget. Whether you’re chasing the Northern Lights, soaking in a lagoon, or exploring waterfalls, you can do it all from a cozy, affordable base in the capital. Plan early, choose smart accommodations, and you’ll experience Iceland’s magic at a price that leaves room for more adventures.