I would hand the car in at Oxford and take the train to London!

If it were me, I would drive the car back to Heathrow, then take the Tube into central London. The only downside would be that you say you're heading to London from Oxford in "late afternoon" -- especially if taking the M40 to the M25. You'll just be sitting in traffic if on a weekday. Alternatively, you could take the A34 to the M4, but I'm not so familiar with that route to know if that would also be a problem.

If you are driving in rush hour, then by all means dump the car in Oxford and take the train into London.

Where are you staying in Oxford? Do they have parking?

If yes, I'd probably keep the car and return in at LHR. That way you can see things enroute if you want. Maybe Avebury, or Windsor, or Henley on Thames, or ??

Traffic shouldn't be horrible eastbound. (not great but but not awful)

Also, who are you renting the car from - some rental locations in Oxford are more convenient than others and that could make a difference.

There isn't a one word answer to this. Anyone who thinks there is unfamiliar with driving in London and Oxford.

If your Oxford hotel is within the area bounded by the Thames to the south, the railway station to the east, St Anne's College to the north and Headington to the west, finding somewhere to park near it will be tougher, driving conditions more fraught and parking possibly pricier than in most of London. I'd almost certainly dump the car before starting an Oxford visit.

"Trying to deal with Central London traffic" is no problem. Indeed an absolute pleasure compared with Oxford (I drive in both at least weekly). The problem is navigating, so if your London destination isn't a straightforward drive from the A40 (Kings Cross, Eversholt St and Edgware Rd ARE straightforward if you do your homework properly beforehand. Victoria and Waterloo aren't), there's a case for dumping your car at Oxford or Heathrow, then tubing or training.

Most people don't actually need a car in either city of course (well actually, I've convinced myself I do.) But if I were a visitor, staying in one of the hotels clustered round the Banbury Rd north of St Anne's, I'd keep the car and drive into London. As long as I didn't have to dump it at Victoria or Waterloo.

Is time enroute a consideration? A train will take you from Oxford to central London in about an hour and a half. Not counting driving time to Heathrow, the tube will take about an hour to reach your destination from the airport.

So I think the real question is will you be charged for an alternate return site. We recently hired a car in Edinburgh and returned it to Heathrow with no extra charge—taking the train from London to Edinburgh as it was quicker and cheaper (EuropeCar). I got from your post that you are driving Oxford to Heathrow so no London driving—is that right? If you think you might use the car while in Oxford then keep it (especially if that gives you a week's rate and you have free parking). Otherwise the train or bus is a quick run to the airport and a lot less hassle.

whoops—dunno how I got that so wrong—but I did! Change all that. Leave the car in Oxford and forget central London driving and surcharges!