Iceland car hire advice please

[smilingmind]

We are thinking of going on a short break to Iceland late Feb early March next year and hiring a car. Choice is between that and longer in Naples in around May.
The trip is with Iceland Air so hopefully will be OK and is very exciting as have a resident DGS so have not had a holiday alone for years.
Makes sense to hire car as cost of trips, airport transfers will be more plus I can walk but not for very long. That way we can have our own itinerary.
We'll be on a limited budget but are very experienced travellers.
Wondering what type of car to hire. Car hire places say cars have all weather tyres so presumably OK and won't need a four wheel drive.
We won't be venturing off road or far from Reykjavik and anyway we are both very experienced off road and bad weather drivers.
Also does anyone know how easy parking is in Reykjavik and if I can use my UK blue badge there ?
Any other tips will be welcome.
Thank you.

I always think you should get the highest grade car you can afford weather in Iceland can be changeable and you need to be prepared for every eventuality. Parking in Reykjavik can be very expensive and in the centre can be limited... I assume you are doing an IcelandAir package which includes one of their hotels? Have a look to see which are available and if they have free parking if you haven't booked already, you won't need a car to get around Reykjavik itself as it is a small and compact city and to be honest you can't get to all of the 'attractions' in the city by car easily anyway. I am 99% sure your blue badge is not applicable in Iceland.
If you want ideas on what to see / do / where to eat let me know what you like to do and I am sure I can come up with a few suggestions.

We went 20 years ago and had a little Corsa! To be fair it was June so not much snow around, but it managed the rough roads without any problems. We did feel a little dwarfed by all the utility vehicles with wheels taller than our car though!
I can't remember parking in Reykjavik - I think we must have left it at the hotel. We walked everywhere in the city.

If you can I would leave the car at the hotel and walk again as it is much easier. Roads have probably got better but I have been in February and had lots of snow.

Smilingmind, we hired a car in iceland from the airport, once we landed we had to wait for the man to pick us up and take us to the rental place. Once at the rental place we got stung with extra insurance charges for various things. So bare in mind when booking your car you have taken out extra insurance as excess charges are ridiculously high should anything happen.
Iceland is a beautiful place and youll have an amazing time!

If you aren't going far might it be better to hire taxis instead?

Thank you everyone.
We have decided to go early October, flying Icelandair, and have booked a big cabin in a beautiful place by the sea near Reykjavik which has rave reviews. So parking there no problem. Going for a week as flights no more, rental not much more and no massive costs of eating out.
We have spoken to the man who owns it who says we will be fine with an ordinary car so intend to book one with good ground clearance.
We'll certainly be aware of the insurance issues.
We looked at trips which cost so much more than car hire plus a car is really essential as I can't walk much. We may even see the Northern Lights from our cabin if we're lucky.
Not sure yet where we will go but not intending to take any long trips.
The AA website says I can use my blue badge but will double check.
Thinking about thermals now and what food to take.
Apparently tea and coffee is very expensive. Any other ideas ?
So exciting.

I went in September and the country is perfectly capable of throwing four seasons at you in one day. We were hit by a sudden snowstorm when we arrived in Myvatn, meaning our ice cave trip was cancelled and we couldn't get up to the volcanic lagoon. We had a 4×4 but there were plenty of people sliding about in sedans!

Iceland is a beautiful, beautiful country and it seems a real shame to spend all your time around Reykjavik when much of the beauty lies beyond.

Do try to get to Jokulsarlon. It is quite possibly my most favourite place on the planet.

Everything is expensive in Iceland!

We used a local car hire company located near the airport. Sorry, I can't remember the name but is was significantly cheaper than using one of the known names. We weren't hit with any extra charges and were picked up from the airport as prearranged.