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If you wish to drive in Sydney, you should consider applying for an international driver's license if you haven't already done so. This license should last for up to 3 months and cannot be renewed if you stay longer than the period. See Driving in Australia for more details.
Using the roads in Sydney is quite relaxing and easy. If you go further from the city, you will find the roads tend to go broader and the traffic easier. Driving in the city takes a while to master, there are many no-right turns and one way street so it is advisable that you get a detailed road map.
The main road routes into New South Wales are the Hume Highway which goes from Melbourne to Sydney. The Princes Highway is the same except it goes via the coast and has more sights to see. The Pacific Highway goes from Brisbane to Sydney via the coast so you will see a number of beach resort but may be tricky to drive. (expect long line ups if you travel on the road before and after peak times)
There are different requirements from rental companies if you want to travel around Sydney. Some will require that you be at least 25 years old or pay extra. Although there are most companies that prefer this age, some will rent out cars to those under 21 years old but you have to be at least 18 years old in order to drive.
Cost of rentals
Should you wish to travel across Australia, a 4WD vehicle is recommended. You need to be aware of a few things. First you need to calculate the insurance. It does pay to read that fine print line. Big companies usually allow one-way rentals but there might be other drop-off charges and other restrictions. (as outline above) The daily rates for a small car such as a Ford Laser could cost you around $65 per day. For a 4WD vehicle such as a Toyota Landcruiser, expect around $115 per day which should include insurance and some free kilometers.
Hazzards on the Road
Animals are probably the worst kind of hazards you can expect if you are driving on lone highways. You can expect to find the odd carcass on the road. Kangaroos are most active at dawn and usually travel in groups so if you see one, simply hit the brakes gently and move to the side of the road. You can expect to find herds of cows and sheep blocking your path if you go into the more rural part of New South Wales.
Dirt roads is another hazard which you should look out for. Be aware that if you drive on dirt roads at around 100km/hr and arrived at a sharp corner, you won't be able to turn your vehicle. In fact, you will literally sailed off into the nearest bush. What's worst is a car turning into the corner which you are turning. You won't be able to avoid the collision so use a little common sense. When you see a corner, slow down and turn the wheel gently.
Renting other alternative vehicles
One of the more popular vehicle used by tourists is the motorcycle. Not only is the Australian climate great for bikes, narrow trails leading into the bushes pose no problems for the humble motorcycle. The only bad part about renting one is the cost. It can cost you from $95 to a hefty $750 deposit for a bike. You could consider buying one from $2,500 but it may be a little difficult to sell one after you do your tour.
Another alternative is the long-distance cycling. Exploring New South Wales on cycle bikes is not uncommon but you do have to be fairly fit and be careful about your eating habits. A word of caution here, as the heat in the summer months can get really hot, you should consider taking lots of water. Wear sun block as often as you can. Helmets as well as light for front and rear of the bicycle is compulsory. It is possible to take your bike into public transports but some will require that you dismantle your bikes before you board. And as always, it is useful to bring along a map and emergency kit.