Exhibit 4.2


                              AMENDMENT NUMBER 1 TO
                               SECURITY AGREEMENT


     AMENDMENT NUMBER 1 TO SECURITY  AGREEMENT (this  "Amendment"),  dated as of
September 30, 2001 by and among UNION ACCEPTANCE FUNDING CORPORATION, an Indiana
corporation,  as seller (in such capacity, the "Seller"),  UAFC-2 CORPORATION, a
Delaware  corporation,  as  debtor  (in  such  capacity,  the  "Debtor"),  UNION
ACCEPTANCE CORPORATION, an Indiana corporation ("UAC"),  individually and in its
capacity  as  collection  agent  (in such  capacity,  the  "Collection  Agent"),
VARIABLE FUNDING CAPITAL  CORPORATION,  a Delaware  corporation (the "Company"),
FIRST UNION SECURITIES, INC. ("FUSI"),  individually and as collateral agent and
deal agent (in such  capacities,  the  "Collateral  Agent" and the "Deal Agent",
respectively) and FIRST UNION NATIONAL BANK ("First Union"), as paying agent (in
such capacity,  the "Paying  Agent")  amending that certain  Security  Agreement
dated as of August 31, 2001 (the "Security Agreement").

     WHEREAS,  the parties hereto mutually desire to make certain  amendments to
the Security Agreement as hereinafter set forth.

     NOW, THEREFORE, the parties hereby agree as follows:

     SECTION  1.  Defined  Terms.  As used  in this  Amendment,  and  except  as
otherwise  provided  in this  Section 1,  capitalized  terms shall have the same
meanings assigned thereto in the Security Agreement.

     Exhibit  C  of  the  Security  Agreement  is  hereby  amended  by  deleting
subsection  (a) and  replacing  it with the  following  (solely for  convenience
changed language is italicized):

     "(a) permit its Tangible Net Worth to be less than, at any time, the sum of
          (x)  $160,000,000,  plus (y) one  hundred  percent  (100%)  of the net
          proceeds  of any equity  offering  by the  Collection  Agent  (whether
          public or private) which occurs subsequent to September 30, 2001, plus
          (z) eighty  percent (80%) of Net Income for the period from October 1,
          2001 through the date of determination;  provided that for purposes of
          calculating  the Collection  Agent's  Tangible Net Worth,  in no event
          shall the Collection Agent's Net Income be less than zero."

     SECTION  2.  Representations  and  Warranties.  Each of the  Debtor and the
Collection   Agent,   represent   and  warrant   that  all  of  its   respective
representations and warranties described in Sections 3.1 and 3.2 of the Security
Agreement are true and correct as of the date hereof as if such  representations
and warranties were recited herein in their entirety.

     SECTION 3. Payment of  Expenses.  The Debtor  agrees to pay any  reasonable
attorney's fees and expenses of the Deal Agent, the Collateral Agent, the Paying
Agent and the Company in connection with the preparation, execution and delivery
of this Amendment.

     SECTION 4. Limited Scope.  This amendment is specific to the  circumstances
described  above  and does not imply any  future  amendment  or waiver of rights
allocated to the Debtor,  the Collection Agent, the Deal Agent, the Paying Agent
or the Collateral Agent under the Security Agreement.

     SECTION 5. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

     SECTION 6.  Severability;  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  shall be deemed to be an original
and all of  which  when  taken  together  shall  constitute  one  and  the  same
instrument.   Any  provisions  of  this   Amendment   which  are  prohibited  or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability  without  invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render  unenforceable such provision in any
other jurisdiction.

     SECTION 7.  Ratification.  Except as expressly  affected by the  provisions
hereof,  the Security Agreement as amended shall remain in full force and effect
in accordance  with its terms and ratified and confirmed by the parties  hereto.
On and after the date hereof,  each reference in the Security Agreement to "this
Agreement",  "hereunder",  "herein" or words of like import  shall mean and be a
reference to the Security Agreement as amended by this Amendment.
<PAGE>

     IN WITNESS  WHEREOF,  the parties  hereto have executed and delivered  this
Amendment Number 1 as of the date first written above.

                                VARIABLE FUNDING CAPITAL CORPORATION, as Company
                                        by First Union Securities, Inc. as
                                        attorney-in-fact

                                By:  /s/ Douglas R. Wilson, Sr.
                                     -------------------------------------------
                                     Douglas R. Wilson, Sr.
                                     Vice President:


                                UAFC-2 CORPORATION, as Debtor


                                By:  /s/ Leeanne W. Graziani
                                     -------------------------------------------
                                     Leeanne W. Graziani
                                     President



                                UNION ACCEPTANCE FUNDING CORPORATION, as Seller


                                By:  /s/ Rick A. Brown
                                     -------------------------------------------
                                     Rick A. Brown
                                     Title:


                                UNION ACCEPTANCE CORPORATION,
                                        individually and as Collection Agent


                                By:  /s/ Melanie S. Otto
                                     -------------------------------------------
                                     Melanie S. Otto
                                     Title:


                                FIRST UNION  SECURITIES,  INC.,
                                        individually and as Collateral Agent and
                                        Deal Agent


                                By:  /s/ Curt Sidden
                                     -------------------------------------------
                                     Curt Sidden
                                     Director


                                FIRST UNION NATIONAL BANK, as Paying Agent


                                By:  /s/ Bill A. Shirley
                                     -------------------------------------------
                                     Bill A. Shirley
                                     Senior Vice President