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Driving is a great way to see Panama. The Panamerican Highway takes you to or near most towns in the country, and with a car you can also visit small villages and explore remote areas more easily. Most secondary roads are well signposted and in reasonable condition.
Panamanian drivers can be a little aggressive, but they're not much worse than New Yorkers or Angelinos. We recommend saving the car for outside Panama City: traffic jams, a dearth of road signs beyond major avenues, and lack of safe parking can make downtown driving stressful.
Gas stations are plentiful in and near towns in Panama, and along the Panamerican Highway. Some are open 24 hours. On long trips fill your tank whenever you can, as the next station could be a long way away. An attendant always pumps the gas and doesn't expect a tip, though a small one is always appreciated. Both cash and credit cards are usually accepted.
Most rental cars run on premium unleaded gas, which is generally a bit more expensive than in the United States. Gas is sold by the liter.
On-street parking generally isn't a good idea in Panama City, as car theft is common. Instead, park in a guarded parking lot—many hotels have them. Many rental agencies insist you follow this rule. Restaurants often have free parking.
Compact cars like a Kia Pinto, Ford Fiesta, VW Fox, or Toyota Yaris start at around $35 a day; for $40-$50 you can rent a Mitsubishi Lancer, a VW Golf, or a Polo. Four-wheel-drive pickups start at $70 a day. International agencies sometimes have cheaper per-day rates, but locals undercut them on longer rentals. Stick shift is the norm in Panama, so check with the rental agency if you only drive an automatic.
Rental-car companies routinely accept driver's licenses from the United States, Canada, and most European countries. Most agencies require a major credit card for a deposit, and most require that you be over 25. Panamanian rental vehicles may not leave the country.
A 4WD (doble tracción or cuatro por cuatro) is only necessary for exploring the Darién, or for other off-road adventures. Many rental agencies prefer—or even stipulate—that you park your car in guarded lots or hotels with private parking, not on the street.
Avis (800/230-2898 in North America; 507/278-9444 in Panama. www.avis.com.pa.)
Budget (800/472–3325 in North America; 507/263–8777 in Panama. www.budgetpanama.com.)
Dollar (866/700–9904 in North America; 507/270–0355 in Panama. www.dollarpanama.com.)
Hertz (800/654–3001 in North America; 507/260–2111 in Panama. www.hertzpanama.com.pa.)
National (800/222–9058 in North America; 507/265–2222 in Panama. www.nationalpanama.com.)
Thrifty (800/847–4389 in North America; 507/238–4955 in Panama. www.thrifty.com.)
If you own a car, your personal auto insurance may cover a rental to some degree, though not all policies protect you abroad; always read your policy's fine print. If you don't have auto insurance, then seriously consider buying the collision- or loss-damage waiver (CDW or LDW) from the car-rental company, which eliminates your liability for damage to the car. Some credit cards offer CDW coverage, but it's usually supplemental to your own insurance and rarely covers SUVs, minivans, luxury models, and the like. If your coverage is secondary, you may still be liable for loss-of-use costs from the car-rental company. But no credit-card insurance is valid unless you use that card for all transactions, from reserving to paying the final bill. All companies exclude car rental in some countries, so be sure to find out about the destination to which you are traveling. It's sometimes cheaper to buy insurance as part of your general travel insurance policy.
Car rental agencies in Panama require basic third-party liability insurance, and the fee is included in their cheapest quoted rental price. Optional insurance to cover occupants and the deductible if you are in an accident deemed your fault is about $20 extra per day for a compact car.
Panama has no private roadside assistance clubs—ask rental agencies carefully about what you should do if you break down. If you have an accident, you are legally obliged to stay by your vehicle until the police arrive, which could take a long time. You can also call the transport police or, if you're near Panama City, the tourist police.
National police (911 for emergencies.)
Tourist police (507/511–9262 for information; 911 for emergencies.)
Transport police (911 for emergencies.)
The Panamerican Highway is paved along its entire length in Panama, and most secondary roads are paved, too. However, maintenance isn't always a regular process, so worn, pockmarked—or even potholed—surfaces are commonplace. Turnoffs are often sharp, and mountain roads can have terrifying hairpin bends.
In and around Panama City traffic is heavy. An efficient toll highway ($5 one way) connects the capital and the Caribbean port of Colón in under an hour.
Turnoffs and distances are usually clearly signposted. Be especially watchful at traffic lights, as crossing on yellow (or even red) lights is common practice.
You cannot turn right on a red light. Seat belts are required. Cell phone use and texting while driving is prohibited. As you approach small towns, watch out for topes, the local name for speed bumps.