Rental Car in Spain

Driving is not difficult in Spain, but you'll have to do the math. Every driver will need an international driving permit (about $20 at AAA) . And don't forget to add the cost of the additional driver/s to the rental cost. Take into account a car large enough to seat 3 adults comfortably and with enough space to store all your luggage out of sight. Then add in the cost of gas (about twice what it costs in the U.S.). It's likely that you will have to pay for overnight parking too.

On the other hand, if you buy train tickets in advance you can get significant discounts. The trains are modern, fast (except to Granada) and a lot more comfortable than sitting in a small car for hours on end. In the cities, driving can be miserable, lots of traffic, one-way streets, trying to find parking. You won't want or need a car while you are staying and sightseeing in those 4 cities, though.

Often the best option is a combination. You may want to rent a car for a day or two while you are in Madrid and/or Barcelona for day trips. For that, you won't need a large car. If you want to visit places between Madrid and Granada, you could rent a car just for that portion.

Last November, we didn't go as far south as Granada, but we still used 2 separate rental cars (both from Europcar), as well as trains, buses and planes. As Chani described, cars are expensive and sometimes a burden in big cities. After a week in Madrid without a car, which included a day trip out to Toledo by train, we headed north by train, then picked up a car in Bilbao for a few days. We then flew from Bilbao to Barcelona before taking a train to Girona, where we picked up another car. True, we missed the flexibility of stopping wherever and whenever we might have wanted along the way, but with the places we wanted to see, we were focused on speed, price, and those specific places, not literally covering a lot of ground in between. When we did have the cars, it was really helpful for getting to smaller places on our own schedule, but parking was particularly expensive 2 nights in San Sebastian, and we hadn't really anticipated that.

The International Driver's Permit, needed alongside your regular driver's license, provides a translation of your license for any cop who might be loking at it, so speaking Spanish isn't necessary in that situation. Hopefully, of course, you'll never need to be showing it to an officer while you're over there, but at least you'll have it if you need it. The highways were efficient and well-marked, but inside towns with narrow streets and not-always-easy-to-follow signage, it was more challenging.

By the way, Vueling Air provides a relatively inexpensive and very fast (even with going to the airport, checking in, going thru Security, etc.) way to go between cities in Spain, so, if you're looking fo a way to get directly between Granada and Barcelona, for example, they may be worth looking into.

Keep in mind a few things:

A rental car is great for exploring rural areas and small towns. It is worthless and more of a burden in cities. Consider your schedule and goals to be sure they match up with the advantages of renting.

The costs of a rental include insurance (getting the CDW is often advised unless you are very sure of your own coverage). Parking. Gas. Tolls (most of the high-speed divided highways in Spain are toll). Compare that with deep discounts you can get from the renfe website for advance purchase.

Toledo is just a 30 minute train ride out of Madrid. It is not car friendly at all. The other destinations are pretty far flung, though Madrid and Barcelona are only 2.5 hours by high speed train.

I've found Spanish driving to be pretty easy and roads well marked and drivers courteous. Make sure to get a GPS system with the car if you do rent. You must have the IDP to legally drive in Spain.

The prior posters all speak with personal knowledge. I have not driven in Spain, only traveled plane, train, and bus. I will agree that except for more remote places not served by one of these three, I would not want an automobile., certainly not in the cities. In the older parts of the cities, the streets are very very narrow (In Toledo you will see the sides of the buildings marked with groves from the ) Perhaps a mixture of plane, train or bus and auto would be advisable...Especially you need to give consideration to the fact that the rental cars are small compared to US habits, and you will likely need two autos for all of you and your luggage to be comfortable.

I haven't used public transportation in Spain since I was a kid. I always have a car and I've driven untold thousands of miles in the country. If I were just going to your four spots, I'd switch back.

We have used both modes of transport. We rent a car when we are going to stay in a specific local region to explore. For all other purposes we use public transport.
Suggestion: go to the Michelin map web site and plot a course of travel you envision for using the car. First take note the distances being traveled. Then compute how many hours you will spend traveling via car. Then consider the impact of rain during your drive and the early arrival of sunset due to time of year. Next ask how well you get along to be all in a rolling tin can for so long. Finally consider that train and bus transport is comfortable, timely and convenient (you do not have to park the bus, fuel up the train or ask for keys to the watercloset from the station attendent and most public transport loos are clean).
There are some tangible expense worth paying, there are some intangible costs you should never place at risk.

You can waste a lot of time circling around looking for parking, paying parking fees, buying gas, etc. If these four cities are the only places you intend to visit, you are better served taking the train or bus. Plus, the person who would otherwise be doing the driving would actually be able to enjoy the scenery.

I find myself renting more and more, primarily because my itineraries aren't easily done with public transportation. I make lots of stops, keep the legs short, and often include day stops between leaving one town in the morning and arriving where I'll stay for the night.

If I'm going from city center to city center, without intermediate stops, I'd take a train. If you purchase tickets ahead of time, it won't be more than paying parking for a car that serves no purpose while you're in a city.