SECOND AMENDMENT TO LOAN AGREEMENT,
                         WARRANT AGREEMENT AND WARRANTS

                                 (Ugly Duckling)

         This  Amendment is entered into as of the 30th day of  September,  2000
(the  "Effective  Date") by and among  UGLY  DUCKLING  CORPORATION,  a  Delaware
corporation  (the "Company") and each lender  signatory hereto (each, a "Lender"
and collectively the "Lenders").

                                    RECITALS

        A.       The Company and Lenders are parties to a Loan Agreement, dated
as of February  12,  1998 as amended on  September  30,  1999 (as  amended,  the
"Loan Agreement")  pursuant  to which the  Lenders  made a loan to the  Company
in the original principal amount of Fifteen Million Dollars ($15,000,000).

        B.       The Company and Lenders are parties to a Warrant Agreement,
dated as of February  12,  1998,  as  amended  on June 5,  2000 (as  amended,
the  "Warrant Agreement")  and  Warrants  for  575,000  shares of  Company
common  stock (the "Warrants").  The Company and Lenders  desire to amend the
Loan  Agreement,  the Warrant Agreement and the Warrants on the terms and
conditions set forth in this Amendment.

        C.       Foremost, one of the Lenders, has requested, and the parties
agree, to the pay off of Foremost  Insurance  Company  ("Foremost") and the
reduction of the principal amount of the Loan Agreement from $15 million to
$13.5 million.

         In   consideration   of  the  premises  and  other  good  and  valuable
consideration,  the receipt and  sufficiency of which is hereby  acknowledged by
each of the parties hereto, the parties agree as follows:

        1.       Defined Terms.  Unless otherwise  specified herein,  all
capitalized terms used in this Amendment shall have the same meaning given to
such terms in the Loan Agreement,  the Warrant  Agreement and/or the Warrants,
as applicable.

        2.       Amendment to Section 2.2 of Loan Agreement.  Effective as of
October 1, 2000, the interest rate under Section 2.02 (a) shall change from 12%
to 15%.


        3.       Amendment to Loan Agreement.  Effective as of the Effective
Date the definitions of "Aggregate  Commitment" and "Maturity Date" in the Loan
Agreement are amended in their entirety to provide as follows:

                  "Aggregate  Commitment"  means the amount of Thirteen  Million
                  Five Hundred Thousand Dollars (($13,500,000).

                  "Maturity Date" means February 12, 2003.

        4.       Pay Off and Removal of Foremost as Lender.  Company shall pay
to Foremost $1.5  million,  plus  accrued  interest  ("Pay Off Amount") by no
later than the Effective  Date.  Upon  receipt by Foremost of the Pay Off Amount
in good funds, Foremost shall have no further  interests,  obligations or
liabilities under the Loan  Agreement  and its Warrant  Agreement,  Company
shall be released from any further  liability  to  Foremost  under  the  Loan
Agreement  and  the  Warrant Agreement,  the principal balance under the Loan
Agreement shall be reduced from $15 million to $13.5 million,  the maturity date
under the Loan Agreement  shall change  to  February  12,  2003,  all of the
Warrants  issued  to  Foremost  in connection with the Warrant Agreement,  and
the Warrant Agreement with Foremost, shall be void and terminated, the total
number of Warrants outstanding under the Warrant Agreement shall be 517,500, and
Foremost shall be deleted from and shall no longer be a Lender under the Loan
Agreement

        5.       Amendment to Section 2 of Loan  Agreement.  Effective  as of
the date hereof, a new Section 2.08 shall be added to the Loan Agreement and
shall provide as follows:

         "2.08 Principal Repayments.  The Lenders may, at any time, upon 45 days
prior  written  notice to the  Company,  demand and the Company  shall  make,  a
principal  payment in the amount of Three Million Five Hundred  Thousand Dollars
($3,500,000). In addition, upon at least 30 days prior written notice before the
end of a quarter (e.g.,  March 31, June 30, September 30 and December 31 of each
year),  the Lenders may request a principal  payment of no more than One Million
Dollars ($1,000,000) ("Quarterly Principal Payment") to be paid at the same time
as accrued interest is payable under Section 2.02 (b). In the event that Lenders
do not request the payment of the Quarterly Principal Payment in a quarter, such
amount shall carry forward to the following quarters ("Carry Over Amount") until
paid or the Maturity Date.  For any quarter,  Lenders may request the payment of
the Carry Over Amount and the current  Quarterly  Principal  Payment;  provided,
however,  that in no event shall such a request for payment exceed Three Million
Dollars  ($3,000,000)  in any one  quarter.  If the Carry Over  Amount  plus the
current  Quarterly  Principal  Payment in any  quarter in which a Three  Million
Dollar   ($3,000,000)   payment  is  requested  exceeds  Three  Million  Dollars
($3,000,000),  the  balance  shall carry  forward to  subsequent  quarters.  For
example,  assume four  quarters  elapse and no  Quarterly  Principal  Payment is
requested by Lenders and in the fifth quarter,  Lenders timely request a payment
of Three Million Dollars ($3,000,000).  The Company would be required to pay the
Three  Million  Dollars  ($3,000,000)  and the Carry Over  Amount of Two Million
Dollars ($2,000,000) would carry over to the next quarter.

        6.       Amendment of the Warrant Agreement and Warrants.  Effective as
of the Effective  Date,  the number of  outstanding  Warrants  (as  modified or
amended pursuant to the terms of the Warrant  Agreement),  517,500  (with the
removal of the Foremost Warrants), available to the Lenders under the Warrant
Agreement and the  Warrants  shall be reduced pro rata by the amount of any and
all  principal reductions made by Company as follows:

                  (Principal reduction) =   (      x       ).
                   -------------------       ---------------
                       $13,500,000        Original Warrant Amount

517,500  minus X equals Y (number  of  Warrants  to be  deducted  from the total
outstanding). 517,500 minus Y equals the reduced aggregate outstanding number of
Warrants  held  by  Lenders.  The  reduction  in  Warrants  shall  be  allocated
proportionately  among all  Lenders.  For  purposes of these  calculations,  the
"Original  Warrant  Amount" used in the denominator  above shall be 517,500,  as
that number may be amended or modified under the terms of the Warrant  Agreement
or by agreement of the parties (a "Modification"), but not as that number may be
or is  modified  under the terms of this  Section 6.  Further,  if the number of
outstanding  Warrants  has  been  reduced  pursuant  to this  Section  6,  and a
Modification  occurs,  then the Modification shall apply  proportionately to the
reduced  number  of  outstanding  Warrants,  unless  otherwise  agreed to by the
parties.

For example, if Company makes a principal reduction of One Million Three Hundred
Fifty  Thousand  Dollars  ($1,350,000),  or ten  percent  (10%) of the  original
principal loan balance,  then the  outstanding  Warrants would be reduced by ten
percent  (10%) or  51,750,  and the total  outstanding  Warrants  would  then be
reduced from 517,500 to 465,750, the reduction to be split proportionately among
all Lenders  (i.e.,  each Lender would have a 10% reduction in the Warrants held
by them). Assuming there was not a Modification,  if there was then a subsequent
principal  reduction  of the  same  amount,  then  there  would be  another  10%
reduction in the number of  outstanding  Warrants of 51,750,  reducing the total
outstanding number of Warrants held by Lenders to 414,000.

        7. Incorporation of Amendment.  The parties  acknowledge and agree that
this Amendment is incorporated into and made a part of, as applicable,  the Loan
Agreement,  the Warrant Agreement and/or the Warrants,  the terms and provisions
of which are hereby  affirmed  and ratified and remain in full force and effect,
except as amended  hereby.  To the  extent  that any term or  provision  of this
Amendment  is or may be deemed  inconsistent  with any term or  provision of the
Loan Agreement,  the Warrant Agreement and/or the Warrants,  as applicable,  the
terms and provisions of this Amendment shall control. Each reference to the Loan
Agreement,  the Warrant  Agreement and/or the Warrants,  shall be a reference to
the agreements as amended by this Amendment. This Amendment, taken together with
the provisions of the Loan Agreement, the Warrant Agreement and/or the Warrants,
as  previously  amended,  which are all  affirmed  and  ratified by the Company,
contains  the entire  agreement  among the parties  regarding  the  transactions
described  herein and supersedes  all prior  agreements,  written or oral,  with
respect thereto.

         8.       Heading.  The paragraph  headings  contained in this
Amendment are for  convenience of reference only and shall not be considered a
part of this Amendment in any respect.

         9.       Governing  Law. This  Amendment  shall be governed by and
construed in accordance with the laws of the State of California.

         10. Assignments,  Participation,  Etc. Each Lender acknowledges that it
is  currently  a Lender  under the Loan  Agreement,  and  parties to the Warrant
Agreement  and the  Warrants,  that it has authority to execute and deliver this
Amendment  and  that  it has not  assigned  any of its  rights  under  the  Loan
Agreement, the Warrant Agreement or the Warrants, except to another Lender which
is party to this Amendment.

         11.  Execution in  Counterparts.  This Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and  delivered  shall be deemed to be an original
and all of which taken together shall constitute one and the same instrument.

                   [Balance of Page Intentionally Left Blank]


<PAGE>


                                                     UGLY DUCKLING CORPORATION

                                                     By: ______________________
                                                     Its:______________________

                                                     ARBCO ASSOCIATES, L.P.
                                                     By: Kayne Anderson Capital
                                                     Advisors, L.P.
                                                     Its: General Partner

                                                     By: Kayne Anderson
                                                     Investment Management, Inc.
                                                     Its: General Partner
                                                     By: ______________________
                                                     Title: ___________________

                                                     KAYNE ANDERSON NON-
                                                     TRADITIONAL
                                                     INVESTMENTS, L.P.

                                                     By: Kayne Anderson Capital
                                                     Advisors, L.P.
                                                     Its: General Partner

                                                     By: Kayne Anderson
                                                     Investment Management, Inc.
                                                     Its: General Partner
                                                     By: ______________________
                                                     Name: ____________________
                                                     Title: ___________________
<PAGE>
                                                     KAYNE ANDERSON OFF-SHORE
                                                     LIMITED

                                                     By: Kayne Anderson Capital
                                                     Advisors, L.P.
                                                     Its: General Partner

                                                     By: Kayne Anderson
                                                     Investment Management, Inc.
                                                     Its: Manager

                                                     By: _______________________
                                                     Name: _____________________
                                                     Title: ____________________

                                                     GLACIER WATER SERVICES,
                                                     INC.

                                                     By: _______________________
                                                     Name: _____________________
                                                     Title: ____________________

                                                     FOREMOST INSURANCE COMPANY

                                                     By: _______________________
                                                     Name: _____________________
                                                     Title: ____________________


                                                     TOPA INSURANCE COMPANY

                                                     By: _______________________
                                                     Name: _____________________
                                                     Its: ______________________