EXECUTION COPY

                               AMENDMENT NO. 3 TO

             POOLING AND SERVICING AGREEMENT AND INDENTURE OF TRUST

         THIRD AMENDMENT,  dated as of October 14, 1997 (the "Amendment") to the
Pooling and  Servicing  Agreement  and  Indenture of Trust,  dated as of July 1,
1995, as amended by Amendment  No. 1 thereto dated as of September 1, 1995,  and
Amendment  No. 2 thereto dated as of December 5, 1995 (the  "Agreement"),  among
AFG CREDIT CORPORATION, a Delaware corporation, as Transferor,  AMERICAN FINANCE
GROUP,  INC., a Delaware  corporation  ("AFG"),  as Servicer,  and BANKERS TRUST
COMPANY,  a banking  corporation  organized  and existing  under the laws of the
State  of New  York,  as  Trustee  (in  such  capacity,  the  "Trustee")  and as
Collateral Trustee (in such capacity, the "Collateral Trustee").

         WHEREAS,  the Transferor,  AFG, the Trustee and the Collateral  Trustee
wish to amend the Agreement in the manner provided for in this Amendment.

         NOW, THEREFORE, the parties hereto hereby agree as follows:

         1. The definition of "Aggregate Net Pool Balance" in Section 1.1 of the
Agreement is amended by deleting the definition in its entirety and replacing it
with the following text:

         "Aggregate Net Pool Balance" means, on any date of  determination,  the
         excess of (x) the Aggregate Pool Balance over (y) the sum of the Excess
         Concentration Amounts, in each case of such date of determination.

         2. The definition of  "Applicable  Discount Rate" in Section 1.1 of the
Agreement is amended by deleting the text "actively  traded" and substituting in
its place the text "two year" and by deleting the text  immediately  after "U.S.
Treasury  securities" and substituting in its place the text "plus (x) 150 basis
points".

         3. The definition of  "Collections"  in Section 1.1 of the Agreement is
amended  by  inserting  the  text   "(including  any  Residual  Value  Insurance
Proceeds),  any cash  payments  made in  connection  with a  substitution  under
Section 2.7," after the text "Insurance Proceeds," therein.

         4. Section 1.1 of the  Agreement is amended by deleting the  definition
of "Crossover Date" in its entirety.

         5. The definition of "Defaulted  Lease" in Section 1.1 of the Agreement
is amended by deleting the text in its entirety  and  substituting  in its place
the following text:

         "Defaulted  Lease" means an Included Lease as to which (i) the Servicer
         has determined in its sole discretion, in accordance with its customary
         servicing procedures,  that such Lease is not collectible, or (ii) such
         Lease is more than three (3) Scheduled Payments past due.

         6. The definition of "Delinquent Lease" in Section 1.1 of the Agreement
is amended by deleting the text in its entirety  and  substituting  in its place
the following text:

         "Delinquent  Lease"  shall  mean,  on any date of  determination,  each
         Included  Lease  with  respect  to which  more  than two (2)  Scheduled
         Payments are past due.

         7. The definition of  "Discounted  Lease Balance" in Section 1.1 of the
Agreement is amended by adding at the end of such definition the following text:

         For  the  purposes  of  computing  the  Aggregate  Pool  Balance,   the
         Discounted Lease Balance of Scheduled  Payments due more than 84 months
         after the date of such  computation  of such  Aggregate  Pool  Balance,
         shall be equal to zero.

         8.  The  definition  of  "Distribution  Date"  in  Section  1.1  of the
Agreement is amended by adding the words  "commencing  in February,  1996" after
the words "the fifteenth day of each month" therein.

         9. The  definition of "Eligible  Lease" in Section 1.1 of the Agreement
is amended by deleting  subsections  (a), (c), (l) and (n) in their entirety and
substituting in each of their places the following text:

         (a) which is payable  in United  States  dollars,  or, if the Lessee of
         such Lease is a Foreign Lessee that is an Eligible Lessee as defined in
         clause  (B)(ii)(y) of the  definition of "Eligible  Lessee",  meets the
         requirement of such clause (B)(ii)(y);

         (c) which is not either (i) a Defaulted Lease as of the related Cut Off
         Date or (ii) a Delinquent Lease as of such date of determination;

         (l) which  provides to the Lessee the option,  upon a Casualty Loss, to
         do one or more of the following:  (i) at the Lessee's expense to repair
         the Equipment,  (ii) to replace the Equipment with similar Equipment of
         equal or greater  value or (iii) to require  that the Lessee pay to the
         lessor the Stipulated Loss Value;

         (n) which, as of the related Cut Off Date, had a lease term of not less
         than 6 months;

         10. The definition of "Eligible Lessee" in Section 1.1 of the Agreement
is amended by deleting the text in its entirety  and  substituting  in its place
the following text:

         "Eligible  Lessee"  shall mean at any date of  determination,  a Lessee
         that  either (A) (i) has  provided a billing  address  for the  related
         Lease in the United  States of America or (ii) is  organized  under the
         laws of the Unites States of America or any State  thereof,  or that is
         organized under the laws of Canada or any province thereof,  or (B) (i)
         with respect to which the Lessee is rated  investment  grade by Moody's
         or  Standard  and  Poor's and (ii) with  respect to which the  Lessee's
         related Lease is either (x) denominated in United States Dollars or (y)
         denominated  in the  Lessee's  local  currency  if the  lease  payments
         thereunder are subject to a currency swap  acceptable to the Deal Agent
         that converts such local  currency  payments to United States  Dollars.
         For purposes of this  definition,  any Lessee the  obligations of which
         under the related Lease are fully and unconditionally  guaranteed by an
         entity that would be an Eligible  Lessee under the preceding  sentence,
         shall be deemed to be an Eligible Lessee.

         11.  Section 1.1 of the  Agreement  is amended by adding the  following
definition after "Floating Pool" and before "Governmental Authority";

         "Foreign  Lessee"  shall  mean  an  Eligible  Lessee  that  (i) has not
         provided a billing  address for the related  Lease in the United States
         of America or (ii) is not organized under the laws of the United States
         of America or any State  thereof,  or that is not  organized  under the
         laws of Canada or any province thereof.

         12.  Section 1.1 of the  Agreement  is amended by adding the  following
definition after "Responsible Officer" and before "Retransfer Agreement":

         "Restricted Note" shall have the meaning specified in Section 6.13.

         13. The definition of "Servicing Fee  Percentage" in Section 1.1 of the
Agreement is amended by deleting the text in its  entirety and  substituting  in
its place the following text:

         "Servicing Fee Percentage" shall mean .40%.

         14.  Section 1.1 of the  Agreement  is amended by adding the  following
definition after "Target Repayment Percentage" and before "Tax Collections":

         "Targeted  Holder"  shall mean each holder of a Restricted  Note,  each
         holder of a participation  with respect to a Restricted  Note, and each
         holder of a right to receive  any  amount in respect of the  Transferor
         Interest;  provided,  however,  that any Person  holding  more than one
         interest,  each of which  would  cause  such  Person  to be a  Targeted
         Holder, shall be treated as a single Targeted Holder.

         15.  Subsection  2.1(d)(ii)(A)  of the Agreement is amended by deleting
the words "and stamp the related Lease Files or otherwise  mark such Leases with
a legend to the effect that such Leases have been  transferred  to the Trust for
the benefit of the Noteholders and the Holder of the Transferor Interest".

         16.  Section 2.5(q) of the Agreement is amended in its entirety to read
as follows:

                  The Transferor  shall  maintain a net worth,  exclusive of the
                  Transferor Interest, that is, at any date of determination, at
                  least  equal  to 5% of the  sum of the  original  cost  of the
                  Equipment relating to all Included Leases.

         17. Section  2.6(b)(i) of the Agreement is amended by deleting the word
"fifth" in the first line therein and inserting in its place the word "third".

         18. Section 2.6(b)(viii) of the Agreement is deleted in its entirety.

         19.  Section  2.7(a) of the  Agreement  is  amended  by adding the text
"and/or  cash" after the text "a Lease and the related  Equipment"  in the first
sentence therein.

         20. Section  2.7(c)(iii) of the Agreement is amended by adding the text
",  except to the  extent  that cash or  additional  Substitute  Leases has been
contributed equal to any deficiency" after the word "replaced" therein.

         21. Section 2.7(c)(iv) of the Agreement is deleted in its entirety.

         22.  Section  6.1 of the  Agreement  is  amended  by  adding  the  text
"Notwithstanding  the above,  Notes issued pursuant to a Variable Funding Series
may be issued in an amount equal to the maximum commitment of each Purchaser, as
specified in the appropriate Supplement." to the end of the paragraph therein.

         23. Subsection 6.13(a) of the Agreement is amended by:

         (a)  adding  the  text  "if,  after  such  transfer,  the  value of the
         transferee's interest (direct or indirect) in the Trust will exceed 50%
         of the  total  value  of  such  transferee"  to the  end of the  second
         sentence thereof.

         (b) adding the text "(i)" between the words  "Transfer  creates" in the
         third  sentence  thereof and adding the text "or (ii) would cause there
         to be more than one hundred Targeted  Holders.  Any transfer that would
         cause the number of  Targeted  Holders to exceed one  hundred  shall be
         deemed void" to the end of the third sentence thereof.

         (c)  deleting  the  text  "(i)" in the  second  paragraph  thereof  and
         deleting the text  following the words  "disseminated  firm buy or sell
         quotations" and replacing it with the text ".".

         24. Subsection 6.14(a) of the Agreement is amended by:

         (a) adding the following text to the end of the first sentence thereof:
         "; provided,  however that any such issuance or reallocation  shall not
         cause the number of Targeted Holders to exceed one hundred."

         (b)      deleting the last sentence thereof.

         25.  Sections  11.6 and 11.24 of the  Agreement are amended by deleting
the text "each Rating  Agency"  therein and  substituting  in its place the text
"Moody's and Standard and Poor's".

         26. Subsection 13.1(c) of the Agreement is amended by deleting the text
"provided" and substituting in its place the text "provided, that such amendment
will not  cause  the  Trust to be  classified  as an  association  taxable  as a
corporation for federal income tax purposes; provided, further,".

         27. Subsection  13.2(d)(ii) of the Agreement is amended by deleting the
text "Exhibit J" and substituting in its place the text "Exhibits C and J".

         28.  Paragraph  1(d) of  Schedule  3 to the  Agreement  is  amended  by
deleting the text "25% of the Aggregate  Pool Balance" and  substituting  in its
place the text "(i) 35% of the  Aggregate  Pool Balance as long as the Aggregate
Pool Balance is less than  $50,000,000 or (ii) 25% of the Aggregate Pool Balance
as long as the Aggregate Pool Balance exceeds $50,000,000,  provided that to the
extent a Lease was an Included  Lease when the  Aggregate  Pool Balance was less
than  $50,000,000,  it shall remain an Included  Lease when the  Aggregate  Pool
Balance exceeds $50,000,000."

         29.  Paragraph 2(a) of Schedule 3 to the Agreement is hereby amended by
replacing the chart therein with the chart attached hereto as Exhibit I.

         30.  Paragraph  2(b) of  Schedule  3 to the  Agreement  is  amended  by
deleting the text "$10,000,000" and adding the text "10% of the Asset Base."

         31.  Paragraph 3 of Schedule 3 to the  Agreement is amended by deleting
the text in its entirety and substituting in its place the following text:

         Other Lease Requirements:  Utilizing the Definition of "Eligible Lease"
         in the Pooling and Servicing  Agreement and Indenture of Trust; (a) the
         sum of the Discounted Lease Balances of all Included Leases, calculated
         for each  Lease at the date of  origination  of each such Lease by AFG,
         would not, on a cumulative basis, exceed 90% of the sum of the original
         cost of the  Equipment  relating  to all  Included  Leases;  (b) Leases
         having  remaining  terms greater than 72 months,  as of the related Cut
         Off Date, may not comprise  greater than 15% of the Asset Base; and (c)
         Leases of Foreign Lessees may not exceed 10% of the Asset Base.

         32.  Section 3(d) of Exhibit B to the  Agreement is amended by deleting
the words "and to stamp such Leases or otherwise  mark such Leases with a legend
to the  effect  that  such  Leases  have been  transferred  to the Trust for the
benefit of the Noteholders and the Holder of the Transferor Interest".

         33.  Section  6(d) of  Exhibit B to the  Agreement  is  deleted  in its
entirety.

         34.  Exhibit  C to the  Agreement  is  amended  by  deleting  the  text
"2.6(b)(viii)"  from the heading of such Exhibit and  substituting  in its place
the text "13.2(d)(ii)".

         35. Pages 2 and 3 of Exhibit H to the  Agreement is hereby  amended and
replaced to substantially conform with Exhibit H attached as Exhibit II hereto.

         36. Except as expressly amended,  modified and supplemented hereby, the
provisions of the Agreement are and shall remain in full force and effect.

         37. THIS  AMENDMENT  SHALL BE CONSTRUED IN ACCORDANCE  WITH THE LAWS OF
THE STATE OF CALIFORNIA, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES
HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS,  PROVIDED,  HOWEVER,
THAT THE  OBLIGATIONS,  RIGHTS AND  REMEDIES OF THE  TRUSTEE AND THE  COLLATERAL
TRUSTEE  SHALL BE  DETERMINED  IN  ACCORDANCE  WITH THE LAWS OF THE STATE OF NEW
YORK.

         38.  Capitalized terms used in this Amendment without  definition shall
have the meanings assigned to them in the Agreement.

         39. This Amendment may be executed in two or more  counterparts (and by
different parties on separate counterparts), each or which shall be an original,
but all of which together shall constitute one and the same instrument.



<PAGE>



         IN WITNESS  WHEREOF,  the parties have caused this Amendment to be duly
executed  by  their  respective  officers  as of the day and  year  first  above
written.

                                     AFG CREDIT CORPORATION,
                                     as Transferor


                                     By:
                                     Title:



                                     AMERICAN FINANCE GROUP, INC.
                                     as Servicer


                                     By:
                                     Title:



                                     BANKERS TRUST COMPANY,
                                     as Trustee


                                     By:
                                     Title:



                                     BANKERS TRUST COMPANY,
                                     as Collateral Trustee


                                     By:
                                     Title:





<PAGE>


                                   Exhibit I


-------------------------------------------------- ============================
                                                       Percentage of Aggregate
                                                           Pool Balance
                Category
-------------------------------------------------- ============================

1.     Included Leases of any individual Lessee that
       are rated AA- or higher by Standard & Poor's
       and Aa3 or higher by Moody's                                20%
-------------------------------------------------- ============================
-------------------------------------------------- ============================

2.     Included Leases of any individual Lessee that
       are rated between investment grade and (i)
       AA- by Standard & Poor's and (ii) Aa3 by                    9%
       Moody's
-------------------------------------------------- ============================
-------------------------------------------------- ============================

3.     Included Leases of any individual Lessee that
       are not rated investment grade by Moody's and               3%
       Standard & Poor's
-------------------------------------------------- ============================
-------------------------------------------------- ============================

4.     Included Leases of all Lessees that operate                 40%
       in the same industry.*
-------------------------------------------------- ============================
-------------------------------------------------- ============================

5.     Included Leases that relate to the same type                40%
       of Equipment**
-------------------------------------------------- ============================
-------------------------------------------------- ============================

6.     Included Leases for which the Scheduled                     10%
       Payments are payable semi-annually
-------------------------------------------------- ============================





*        Based upon Primary Standard Industrial Classification Code Number.

**       As determined by AFG Credit Corporation in accordance with its 
         customary procedures.