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You can rent a car from international brand agencies or from local agencies. You can get special deals with locals but that involves some negotiation, so it’s up to you if you feel like bargaining. Usually it's best to reserve before you leave home. Car rentals offered by your airline are often more expensive. Do not commit to rent unless you know which car rental company will provide the car. Search for other traveler's experiences with the different car companies on the TripAdvisor Forums. Forum posts often recommend the reputable broker AutoEurope where you can compare prices with one search and they have a 24/7 help line in English during the rental. A cheaper broker is Kemwel, a susidiary of AutoEurope.
You will find many rental agencies in the city or at Barajas Airport: Barajas Official Website (EN). The first six listed below are available at the airport:
All agencies have a range of models, but they will give you a manual transmission car. If you prefer an automatic, reserve weeks in advance and make it clear to the agent that you want a car with automatic transmission.
When you pick-up your car, be sure ALL damage is listed on the 'Condition Report'.
It is better to drive a small car because some roads, yes in Madrid, can be really narrow and at some places you‘ll have problems finding a parking space.
1- Taxi fares are moderate compared to other European cities. The price for a taxi ride from the Barajas airport to the centre of Madrid is 30€ one way. This tariff has come into effect on January 7, 2014. The ride is about 30-minute. All taxis are metered and well regulated. You won't need to negotiate the fare.
2- Taxis perfectly combine with walking if you are moving in the inner city. You can hail the taxi on the street or you can call one. Here is a list with main Madrid taxi services.
3- There are online calculators where you can estimate the taxi fares by entering the starting point and ending point. Some support flat rates and include surcharges, so try looking up the fees before you travel.
The Taxis of Madrid are metered so you would think you would not need to ask the fare, but YOU DO. Taxis often add charges for transportation to and from large trade shows (typically about €3) or to be picked up or dropped off at the airport (has been reported to be DOUBLE the metered fare!) These cost are not shown on the meter, you will only hear about them when its time to pay. Plan accordingly.