Paying penalty for early settlement: Nic Cicutti tells of a couple landed with an unexpected 4,000 pounds bill

A COUPLE from Coventry are locked in dispute with a subsidiary of Barclays Bank over a pounds 4,000 penalty imposed for redeeming a pounds 200,000 loan ahead of time.

Rita and John Cahill have been charged an extra three months' interest by Barclays Mercantile because they failed to complete a new financing deal immediately after the end of the notice period they gave their lender.

The couple, who run a 15- bed rest home for the elderly, claim they were never told orally or in writing of this potential penalty.

Had they known, rather than lose the pounds 4,000 they would have given a further three months' notice to Barclays Mercantile as laid down in the original contract. They would then have completed the deal on the day the notice period expired.

Mrs Cahill said: 'I think what they are doing is really unfair. They are imposing a condition on us which never existed in anything they sent us when we took out the loan in the first place.

'As far as we are concerned, we are not going to let them get away with it. We will fight them for as long as it takes to get our money back.'

The couple first approached Barclays Mercantile for a pounds 200,000 loan in 1990 when they wanted to build an extension to their rest home, St Jude's, and refinance their existing borrowings.

'The loan was arranged in such a way that if we repaid the amount in full or in part within the first two years of taking it out, we agreed we were liable to three months' additional interest,' Mrs Cahill said.

'After that, if we wanted to redeem the loan we had to give three months' notice to avoid any penalty.'

The March 1990 offer of a loan to the Cahills makes no reference to any penalty other than if three months' notice is not given.

Mrs Cahill said: 'In September 1993 we decided to obtain a new refinancing deal where the monthly repayments were cheaper.

'We gave Barclays Mercantile three months' notice as we were supposed to. Unfortunately, due to various problems we were unable to complete until March this year.

'At every stage in the game we kept the company fully informed of what was happening. They never told us that we would have to pay if we did not complete within a certain time period.'

It was only after completion of the deal that they discovered they were liable for the additional penalty. A Barclays Mercantile spokesman said: 'The legal position is that if the borrower does not complete on the day that the notice expires or within a reasonable period thereafter we may charge the extra interest.

'On the other hand, if the company was advised of the reason for any delay and told of another expected date of completion the borrower is entitled to an extension of the notice period until completion does take place. As this is not a clear-cut situation, we will look at this case again on the basis of what information Mr and Mrs Cahill can give us as to why there was a delay. If it is a reasonable explanation we may reconsider our decision.'

(Photograph omitted)