Driving Vacation to the Algarve Coast of Portugal and Spain

You'll need to return the car to Portugal to avoid a painful international drop charge. I can't tell from your post whether that is your plan.

Neither the Algarve nor Gibraltar would be anywhere near the top of my list for a short (I assume) trip to the Iberian Peninsula. In southwestern Spain, I'd head first to Seville (much closer than Gibraltar) and Cordoba (probably about the same distance as Gibraltar).

I have no experience driving in Europe, so I can't comment on that aspect of your plans.

Weather is another consideration. In mid-summer Andalucia is terribly hot. What time of year is your trip?

There isn’t a big issue driving from Portugal into Spain, as long as you drive back into Portugal to turn in the car. Some say you need to inform the car rental agency, but I didn’t when I drove from Portugal into Spain and back.
I agree that Gibraltar is way down the list of interesting places to visit and that Sevilla and Córdoba are top picks.

The Algarve is horrid. Couldn’t get out of there fast enough. So many other amazing places to see, such as Seville, Cordoba, etc.

I have hired cars in Portugal that insure you to go to Spain, whilst others have charged an additional fee. The one way drop fee will be high between countries. Try a dummy booking with your travel dates to see the costs.

How long is your trip? The Algarve is mostly about beaches and golf and in summer is overrun with tourists.

Spain - what are your interests and why have you picked Spain? Seville (parking is an issue), Jerez for the sherry, Cadiz and Granada plus the White Villages are the obvious stops.

Personally, I would give Gibraltar a wide berth, as it’s too tacky. You probably will not be permitted to take the hire car onto the island and there can be long queues to get on.

You can easily spend 3 weeks driving around Portugal and still only see half the country.