Rental car - Lava rental experience for Iceland next May & vehicle for 5 adults

I have not used Lava, but have read about them on occasion. Not often enough for me to try them though, FWIW.

On one trip we took our 3 adult kids. We had the Land Cruiser, with the 3rd seat removed. That way we had more cargo room in the back. This was ideal for us. If you have the 3rd row, you will absolutely not have room for luggage for 5 people. On that trip, the 3 "kids" were in the 2nd row and they had plenty of room. We took turns with seats so that nobody was in the 2nd row the entire time. The luggage was in the back, and we used duffel bags since those were easier to squish vs regular suitcases. That trip we had 12 days and every night was in a different place. You don't need to take anything more for 12 days than you do for say 4 or 5. I do always pack enough underwear for the whole trip, but the rest of the stuff can be worn multiple times especially if it is merino wool. Have you looked for cottages that have a washer and dryer? That has worked well for us. Even on our trip just a few weeks ago, the guesthouse had laundry service available, so we did use that. If you have not booked lodging yet, definitely look for 1 or 2 cottages that have a washer and dryer.

One thing you really want to be cognizant of is the wind. With a van, those sit higher and the winds can and do blow them over easier than a regular vehicle. We had a camper van on one trip in July/August and there was one day we had to scurry to a campground to park and stay put due to the winds. On our trip a couple weeks ago, our car did get blown, but only by a few feet and thankfully we had room before going over the edge.

You did not ask, but here is a tip. When you pack the vehicle each morning, put the regular duffel bags/luggage in first, then the day packs and then a cooler bag on top so you can access it easily. We often did picnics at the dedicated roadside stops and used the hood of the vehicle as a table.

We used LAVA last month, and they were great to work with in renting our Tesla for 3 weeks. LAVA will pick you up and return you to the airport very efficiently - they pick up on the opposite side of where the FLYBUS picks up. There is currently construction outside the airport, so all could change by the time you go.