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Iceland-Can you drive compact Rental car to major attractions

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We are planning a 4 day trip to Reykjavik in early July. Based on the information on this board, we are thinking of renting a car. Are the roads paved or in good condition to drive the compact rental car to major attractions such as Golden Circle and part of Ring Road (Snaefellsnes or towards Vik), or do we need a 4WD. Any recommendations on budget hotels or rental car companies in Reykjavik. All the hotels just seem really expensive. Thanks

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