The answer depends on:

How much you like driving.
How much money you want to spend.
How much stuff you are carrying around.
How much you want to go on excursions.
How much you care about having the responsibility of having a car.

There is a good bus service between Spanish cities.
For times, prices and tickets click here
http://alsa.es

For hire cars see info on this page
http://granadaforo.com/getting-to-granada/does-anyone-know-the-best-place-to-hire-a-car-from-malaga-airport/

The cheapest parking in Granada is 36 euros per week.
It's probably a lot more expensive to hire a car.

ARGUMENTS FOR BUS

Public transport is a good way of getting to know a place and is fairly cheap and reliable.
You are much more in contact with everything on public transport.
If you come by to Spain by air you won't have much luggage anyway.
Get some good books so that if you have to wait a while at a bus station it's no problem.
Spend the money you save by not hiring a car on other more fun things.

Having a private car is like watching a film.
Using public transport is like being in the film.

If you are driving you can't look at the view because you have to look at the road.
The city of Granada is for pedestrians. The only thing you can do in Granada city with a car is park it.

On public transport there is much more possibility of meeting other people and getting into impromtu situations.

ARGUMENTS FOR CAR
You can go to places not on bus routes.
You can go for days out and excursions.
You can carry more stuff.
You don't have to wait for the bus.
When travelling by car you don't have to put up with other people or their children.