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There is plenty to see and do without a car in Chiang Mai, plus parking can be an problem especially if you are staying in the central parts of town. If you are simply spending a couple of days exploring town and the immediate surroundings, I would not advise renting a car.
If you have a more time and want to head out for a few days to explore more of northern Thailand, then perhaps a rental car would be good.
If you do rent, a couple of things to remember ... in Thailand we drive on the left side of the road (like the UK) ... there is a lot of give and take on the roads when it comes to right of way and road rules ... if your drivers license is not in English you need to get an IDP (International Driving permit) from home.
There are plenty of decent car rental companies in Chiang Mai. All of the global brands are here, plus you have long time local companies like North Wheels, Pop Rent a Car.
As with any rental company, inspect the car in the presence of rental agent and have them mark any damage on the rental form. If you are nervous, take photos of any existing damage in the presence of the agent (maybe even work them into one of the shots).
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I agree with Tom. Songthaews and tuktuks will make you appreciate Chiang Mai more, and they're definitely a more affordable option. If you have to deal with a car rental company, be very wary and make sure to Google it up and contact the best ones. You might wanna check out EasyTerra.
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I would certainly recommend renting a car when you're planning on visiting sights outside the city centre. As others have pointed out, inside the city centre is a pain when it comes to traffic jams and parking, but the first also applies to taxis and other modes of transportation that are wider than a motor bike (and those tend to be more dangerous).
My advise would be to take a hotel room inside the city centre for the days you're planning to do stuff there and to rent a car and use hotels on the outskirts of town (or out of town if you're doing a multi-day road trip) to explore the other sights. And yes, there are many other sights (Doi Suthep, Doi Inthanon, one of the many waterfalls, etc.) and there are many overpriced tours from the city centre but those tend to be less flexible than driving yourself.
As for where to rent your car, I recommend the international companies that have offices all over Thailand (most airports and some city centres). Using one of those rather than a smaller company means that they probably have services in place to help you should you need roadside assistance. Small companies may have that too, but it's easier to contact those larger companies and get help when you're further away from your rental location (or when it's outside office hours).