Yashpal, a plastic scrap dealer, was arrested along with his associate Manoj, who was hired to help him in eliminating Darshana Devi after she demanded the money she had lended.
Devi used to lend money to people known to her at 3 per cent rate of interest. When she demanded double rate of interest for the amount she lended to Yashpal, he decided to eliminate her.
Police said Devi went missing from her home on July 21 after which her son approached police.
When police traced the call records of the mobile phone used by Devi, they found a number of calls were made to a particular number which turned out to be one belonging to Yashpal.
"On Tuesday, the team traced Yashpal in Sannoth village, Narela. He was arrested after a chase. Yashpal admitted that he had taken a loan of Rs 4 lakh from Devi. She was pressurising him to return her money," DCP (Outer District) B S Jaiswal said.
Yashpal was running a business which ran into losses and due to this he was neither in a position to repay the interest nor the principal amount, the DCP said.
"He admitted that he alongwith his friend Manoj had murdered the woman and had thrown her body near a canal in Rohat village in Sonepat district," Jaiswal said.