Two things:
If the pads are 'grinding' but are not worn down, check the outer rim of the disc. Discs often wear down where the pad normally rubs, and this results in a large lip forming all around the outer edge of the disc.
Then, when you apply pressure to the pads, the ends of the pads come into contact with the lip and create the noise.
If this is the case, you can chip/grind it off until the edge of the disc is square and clean, but be aware that if this IS the case, then your discs may be getting too thin and may fail the MOT next time around.
Don't forget to check Both front discs and not just the one.
Also, Never use oil anywhere near the braking system.
To lubricate the calipers, use high melting point brake GREASE. Oil tends to attack the rubber seals as well.
Hope this helps
Regards
Wyn
Wyn, July 2007
