Credit costs will be capped at a total of 100%, meaning that customers can't be charged more than double the base price of an item in charges or interest.
It also bans retailers from raising insurance premiums, arrears charges and warranties to offset the impact of the cap.
New products offered to customers from 1st April 2019 will be covered by the cap, with further restrictions coming into force later in the year.
Customers buying from RTO firms will now know the maximum they will have to pay for an item, including all charges the company might add for their services.
In the past, customers have found themselves paying up to four times the average price of household items such as fridges and washing machines.
The cap will limit this to 100% of the base value of a product, so a fridge purchased at £150 could never cost more than £300.
To prevent companies attempting to circumvent the cap by increasing the base prices of items, firms will have to benchmark their base prices against those charged by 3 mainstream retailers.
These base prices will include delivery and installation to stop companies trying to manipulate the new rules.
Products that are new to the market after the implementation date of 1st April will be subject to the cap, while products RTO companies are already offering must be in line with the rules by 1st July at the latest.
Micro-enterprises are subject to the same rules as large RTO firms for new products when the cap is introduced in April but have until October to comply with the regulations on existing products.
The Financial Conduct Authority (FCA) has been investigating the impact of the rent-to-own market since 2015.
Their investigation was prompted by the All Party Parliamentary Group on Debt and Personal Finance highlighting the unclear price structures in the RTO sector.
In November 2018, the FCA announced a consultation on the proposed cap, and state that feedback from the respondents suggested support for intervention was high amongst consumer groups.
At the time the consultation was launched, market experts warned that the effects of the cap could force RTO companies to close their doors, leaving unregulated lenders as the only option for vulnerable customers.
Rent-to-own retailer Buy As You View was ordered to pay compensation to over 59,000 customers in 2016 for treating consumers unfairly and subsequently collapsed.
However, the FCA have pledged to work with the Government to promote customer awareness of the alternatives to high-cost credit available and intend to publish an update later in 2019.
The rent-to-own sector is often seen as an important credit solution for low income households who are considered to be a financial risk for traditional lenders.
This might be due to missing payments or having a generally poor credit rating, but those customers are then left with few ways to raise money for vital home items, often turning to RTOs or payday loans to meet the shortfall.
Despite reforms in the payday loan sector which resulted in the high-profile collapse of Wonga in 2018, other payday lenders have moved in to fill the gap in the market.
In our guide to short term lending, we examine the alternatives and these apply as much to potential RTO customers as they do to those likely to borrow via a payday lender.
The full impact of the FCA's rent-to-own price cap will take several months to become clear, and it remains to be seen whether the cap will have any accidental adverse effects on customers.
Get insider tips and the latest offers in our newsletter
We are independent of all of the products and services we compare.
We order our comparison tables by price or feature and never by referral revenue.
We donate at least 5% of our profits to charity, and we have a climate positive workforce.