UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                  FORM 10-K

[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(D) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934
     For the fiscal year ended December 31, 1997

[ ]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(D) OF  THE  SECURITIES
     EXCHANGE ACT OF 1934
     For the period from             to 

                       Commission File Number: 0-22067

                      National Auto Finance Company, Inc.
             (Exact Name of Registrant as Specified in its Charter)

                    Delaware                              65-0688619
        (State or Other Jurisdiction of                (I.R.S. Employer
      Incorporation or Organization)                  Identification No.)

621 N.W. 53rd Street, Suite 200, Boca Raton, Florida         33487
    (Address of Principal Executive Offices)              (Zip Code)

      Registrant's telephone number, including area code: (561) 997-2413

         Securities registered pursuant to Section 12(b) of the Act:
                                     None

         Securities registered pursuant to Section 12(g) of the Act:
                    Common Stock, par value $.01 per share

Indicate  by check  mark  whether  the  registrant:  (1) has filed  all  reports
required  to be filed by  Section  13 or 15(d) of the  Exchange  Act  during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports),  and (2) has been subject to such filing  requirementNo [
]e past 90 days. Yes [X]

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

The  aggregate  market value on April 24, 1998 (based on the $2.50 closing price
on the  NASDAQ  Stock  Market  on  that  date)  of the  common  equity  held  by
non-affiliates  of the registrant was  $12,001,905.  The number of shares of the
registrant's Common Stock outstanding on April 24, 1998 was 9,030,762.


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                           FORWARD-LOOKING STATEMENTS

     When used in this  Annual  Report on Form  10-K or  future  filings  by the
Company (as  hereinafter  defined) with the Securities  and Exchange  Commission
(the  "Commission"),  in  the  Company's  press  releases  or  other  public  or
stockholder  communications,  or in oral statements made with the approval of an
authorized  executive  officer,  the words or phrases "will likely result," "are
expected  to," "will  continue,"  "is  anticipated,"  "estimate,"  "project"  or
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. The Company
wishes  to  caution   readers   not  to  place   undue   reliance  on  any  such
forward-looking statements,  which speak only as of the date made, and to advise
readers  that  various  factors,   including   regional  and  national  economic
conditions,  substantial  changes in levels of market interest rates, credit and
other risks of lending and investment activities, and competitive and regulatory
factors could affect the  Company's  financial  performance  and could cause the
Company's  actual  results for future  periods to differ  materially  from those
anticipated by any forward-looking statement.

     The Company does not undertake and specifically disclaims any obligation to
update any  forward-looking  statements to reflect the occurrence of anticipated
or unanticipated events or circumstances after the date of such statements.

                                     PART I

Item 1.  Business.

General

     National Auto Finance  Company,  Inc. (the "Company") is a consumer finance
company specializing in the business of purchasing,  financing, securitizing and
servicing motor vehicle retail installment sale contracts  ("Loans")  originated
by  automobile  dealers  ("Dealers")  in the sale of new and  used  automobiles.
Through its Loan purchases, the Company provides indirect financing to consumers
with  limited   financial   resources  or  past  credit   problems   ("Non-Prime
Consumers").  The Company serves as a source of financing for Dealers,  allowing
them to sell  automobiles to customers who otherwise might not be able to obtain
financing from more traditional sources.

     The  Company's  business  strategy is to  increase  its Loan volume by: (i)
marketing  its  products  and  services  to  an  increasing  number  of  Dealers
throughout  the  United  States  through  its  regional   salespersons  ("Dealer
Relations  Managers")  located in strategic  geographic  areas  ("Direct  Dealer
Originations");  (ii) continuing to implement its existing,  and developing new,
strategic referral and marketing alliances  ("Strategic  Alliances");  and (iii)
purchasing  Non-Prime  Consumer  Loans  that  meet  the  Company's  underwriting
criteria  from  third-party  originators  ("Third-Party  Originators"),  such as
consumer  finance  companies and other  financial  institutions  (the "Portfolio
Acquisition Program").

The Non-Prime Consumer Automobile Finance Industry

     Automobile  financing is the second largest  sector,  by dollar amount,  of
consumer  installment debt in the United States.  According to the United States
Federal Reserve Board,  approximately  $381.0 billion of automobile  installment
credit  was  outstanding  at the end of 1996,  of which  the  Company  estimates
approximately $75.0 billion was attributable to Non-Prime Consumers.  The market
for Non-Prime Consumer credit is highly fragmented,  with no one finance company
controlling more than 2% of the market.

Dealer Relationships

     As of December 31, 1997,  the Company had  contractual  relationships  with
over  2,300  Dealers  located  in 29  states,  more than 1,200 of which were the
result of the Company's  Strategic  Alliance  with First Union  National Bank of
North Carolina  ("First Union") and certain of its national bank affiliates (the
"First  Union   Strategic   Alliance").   The  Company   focuses  on  developing
relationships with well-established  Dealers. The vast majority of the Company's
contractual


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relationships are with manufacturer-franchised  Dealers, rather than independent
Dealers.

     Each Dealer doing  business  with the Company  enters into a  non-exclusive
written agreement with the Company that governs the Company's purchases of Loans
from the  Dealer  (a  "Dealer  Agreement").  Although  these  agreements  do not
obligate a Dealer to sell, or the Company to purchase,  any particular Loan, the
Dealer  Agreement  sets  forth the  terms  upon  which  approved  Loans  will be
purchased by the Company. Additionally, these agreements contain representations
and  warranties  to be made with respect to each Loan  purchased by the Company,
each  automobile  that  serves  as  collateral  for the Loan  (e.g.,  that it is
properly registered and that the Company will be the first lienholder), and each
Loan's compliance with certain laws and regulations. Dealer Agreements generally
provide that the Loans are sold to the Company  "without  recourse"  (i.e.,  the
Dealer  does not  assume or retain  the  credit  risk with  respect  to any Loan
purchased by the Company),  unless the Dealer has  materially  breached  certain
representations  and warranties in the Dealer  Agreement.  The Company carefully
monitors its Dealer  network and will  terminate its agreement with a particular
Dealer if the Company discovers material  misrepresentations with respect to any
Loan, or unusual  repossession  experience or other factors that might  indicate
fraudulent conduct by a particular Dealer.

     In the Company's  experience,  Dealers prefer  financing  sources that: (i)
provide  value-added  products and services  designed to increase their sales of
automobiles;  (ii) maintain  regular  contact with Dealer  finance  departments;
(iii)  communicate  credit  decisions in a timely manner;  (iv) have  consistent
underwriting  standards;  (v) are able to fund Loan purchases quickly;  and (vi)
offer a competitive  price to purchase the Loan. The Company seeks to meet these
needs while taking efforts to ensure that its delinquency  and loss  experiences
remain at acceptable levels.

Products and Services

     In its efforts to build a strong Dealer  network,  the Company  provides an
array of products  and services to Dealers.  The  Company's  products  generally
consist of the Loan  programs it offers to  Dealers.  For  example,  the Company
currently is willing to purchase Loans on automobiles  that are up to five model
years old with fewer than  75,000  odometer  miles and,  depending  on the model
year, is willing to purchase Loans having  maximum terms of 60 months,  with the
length of the Loan being shorter for older model-year automobiles. The perceived
credit risk of the borrower will affect the annual percentage rate charged for a
particular Loan and will also affect the discount from the face amount of a Loan
at which the  Company  is  willing to  purchase  the Loan from the  Dealer  (the
"Dealer  Discount").  The Company also offers a  lease-equivalent  product,  the
Preferred  Customer  Option  Plan  ("PCOP"),  designed  to  appeal  to the  most
creditworthy  of the  Non-Prime  Consumers  the Company will  finance.  The PCOP
program enables the borrower to purchase a more expensive vehicle than he or she
might  otherwise be able to afford,  because a  substantial  portion of the Loan
balance is deferred until a balloon payment at maturity, which, depending on the
model year,  may be as late as five years after the Loan is made.  At  maturity,
the borrower has the option of refinancing  the automobile for one year with the
Company,  making the final  payment and thereby  retaining  the  automobile,  or
returning  the  automobile  to the Dealer  for a $250  termination  fee.  If the
borrower  returns the automobile,  the Dealer may either buy it from the Company
by making  the final  Loan  payment  or return it to the  Company.  Based on the
Company's  experience,  the  wholesale  auction  value of  returned  automobiles
generally  equals or exceeds the amount of the  balloon  payment.  The  Company,
however,  maintains  insurance to protect its residual  interest in  automobiles
financed under the PCOP program.  At December 31, 1997, PCOP Loans accounted for
1.72% of the  aggregate  outstanding  principal  amount  of Loans  for which the
Company performs servicing and collections (the "Servicing Portfolio").

     The  Company  seeks to provide  value-added  services to Dealers to enhance
their financing of Non-Prime Consumer Loans by: (i) reviewing Dealer inventories
to determine  adequate  inventory levels based on trends the Company observes in
Non-Prime Consumer automobile  purchasing;  (ii) training Dealer sales people to
identify Non-Prime Consumers who meet the Company's  underwriting  criteria; and
(iii) working with Dealers to establish separate finance desks that specifically
service Non-Prime  Consumers.  The Company also has developed  specific services
for Dealers that are designed to attract customers and offer flexible financing.
For  example,  Credit  Clinic(TM)  is a service  pursuant  to which  the  Dealer
advertises  a sale for the  "credit  challenged"  and the  Company  provides  an
on-site  credit  counselor  who  advises  the  Non-Prime  Consumer on choosing a
vehicle with a monthly payment he or she can manage.  The Company  believes that
this service  enhances a Dealer's  sales of  automobiles  because it  encourages
Non-Prime  Consumers,  who might otherwise be apprehensive  about their personal
credit histories, to seek financing for their vehicle purchases.


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     The Company  constantly  seeks to modify its  products  and services and to
implement  new ones in order to respond to  changing  market  conditions  and to
serve specific niches in the Non-Prime Consumer market.

Marketing and Loan Acquisition Strategy

   General

     The  Company  attempts  to  increase  the  number  of Loans  it  purchases,
securitizes and services by (i) marketing the Company's products and services to
an increasing number of Dealers  throughout the United States through its Dealer
Relations Managers;  (ii) maximizing its existing, and developing new, Strategic
Alliances; and (iii) purchasing Non-Prime Consumer Loans that meet the Company's
underwriting criteria from Third-Party Originators.

   Direct Dealer Marketing

     The Company's  direct  marketing  strategy is centered  around  experienced
management and field sales employees who are located in key geographic  regions.
Direct marketing to Dealers is conducted by Dealer  Relations  Managers who seek
to train and educate Dealers about the credit profile of the Non-Prime  Consumer
who meets the  Company's  underwriting  criteria,  familiarize  Dealers with the
Company's  existing  products  and  services,   solicit  feedback  from  Dealers
regarding  new products and services  that would  enhance a Dealer's  ability to
sell  automobiles to Non-Prime  Consumers,  and generally  provide  Dealers with
ongoing  service and support.  The Company's  marketing  department also designs
sales incentives to motivate Dealers to submit applications to the Company.  For
example,  the Company periodically offers "vacation miles" awards to Dealers for
each  contract  funded,  which  the  Dealer,  in turn,  can  award to its  sales
personnel.  Those vacation  miles may be redeemed by the Dealer's  employees for
vacation packages or airline tickets.  Similarly,  the Company has created sales
incentives that enable Dealers to earn gift certificates from various retailers.
The marketing  department  works closely with the Dealer  Relations  Managers to
design appealing incentives for the Company's Dealers. The Company believes that
the intensive  on-site Dealer service provided by Dealer Relations  Managers and
the Company's  marketing  programs enhance the effectiveness of the products and
services offered by the Company,  strengthen  existing Dealer  relationships and
foster new business.  The Company derived  approximately  31% of its Loan volume
for the year ended  December  31, 1997 from Direct  Dealer  Originations,  which
excludes Strategic Alliance originations.

   Strategic Alliance Marketing

     The Company  relies on its  Strategic  Alliances  to increase the number of
Loans it  purchases by (i) using the sales force of the  financial  institutions
and Dealer groups with which the Company  establishes  such  alliances to market
the Company's  Non-Prime  Consumer  products and services and (ii) obtaining the
right  to  review  and  purchase  Non-Prime  Consumer  Loans  that do not meet a
financial  institution's or Dealer group's underwriting criteria.  Through these
alliances, the Company offers these financial institutions and Dealer groups the
opportunity  to expand  their  product  offerings  and to earn fees based on the
number of Loans that are purchased by the Company as a result of the alliance.

     Direct  marketing to financial  institutions and Dealer groups is conducted
by  senior  management  of the  Company.  Senior  management  seeks to  identify
prospective  financial  institutions  or Dealer  groups  suitable for  Strategic
Alliances  and  negotiate  the terms of such  alliances.  The  Company's  Dealer
Relations  Managers provide operating  services and support,  including training
and  education  with  respect  to both the  Non-Prime  Consumer  market  and the
Company's products and services.  Upon consummation of a Strategic Alliance, the
Company  expects  that the  financial  institution's  or  Dealer  group's  sales
personnel  also will  support  or  supplement  the  Company's  direct  marketing
efforts.

     In April 1996, the Company entered into the First Union Strategic Alliance,
the Company's  first  Strategic  Alliance.  The First Union  Strategic  Alliance
provides for the (i) joint  marketing of the Company's  products and services by
both the Company's sales force and the sales personnel of the automobile finance
division of First Union ("First Union Auto Finance") to the approximately  3,400
Dealers throughout twelve states and the District of Columbia with which First


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Union Auto Finance has an existing  relationship and (ii) exclusive  referral by
First Union Auto Finance to the Company of all  applications  for Loans received
from  Dealers  that  fall  below  certain  established  credit  guidelines.   In
consideration  for  these  services,  First  Union  receives  a fee on each Loan
purchased  by the  Company as a result of the First  Union  Strategic  Alliance.
Pursuant to the referral  agreement,  funded Loan referrals are without recourse
to First Union.  The First Union Strategic  Alliance has enhanced  significantly
the Company's ability to further its market penetration and increase the size of
its Dealer base. For the year ended December 31, 1997,  approximately 43% of the
Loans the Company  purchased  were  attributable  to the First  Union  Strategic
Alliance.

     The  Company's  referral  agreement  with First  Union Auto  Finance  has a
three-year term that currently  terminates in April 2000. Subject to the consent
of First Union Auto Finance,  the referral  agreement may be renewed in April of
each year for an additional  year, such that,  after its renewal,  the remaining
term of the referral  agreement  continues  to be three  years.  First Union may
terminate the referral agreement upon, among other things, a "change of control"
of the Company as defined in the referral  agreement.  In the event the referral
agreement  is  terminated,  the Company may continue  the  relationships  it has
established  with  First  Union-related   Dealers.  In  addition,  the  referral
agreement  precludes the Company from purchasing Loans from First  Union-related
Dealers through other Strategic  Alliances in the same geographic areas as those
covered by the First Union Strategic Alliance.

     In March 1998, the Company entered into a similar  Strategic  Alliance with
U.S. Bank,  N.A. (the "U.S.  Bank  Strategic  Alliance") to serve as a non-prime
automobile  financing source for U.S. Bank, N.A.'s ("U.S.  Bank") Dealer network
of approximately  2,500 Dealers in 20 Western and Midwestern states. The Company
believes  that  the  U.S.  Bank  Strategic   Alliance   creates  another  strong
distribution  channel  through  which the  Company may access new Dealers in new
markets.

     The Company  also has  referral  relationships  with Amcore  Bank,  N.A. in
Illinois,  Community Bank in  California,  First Federal  Savings Bank,  N.A. in
Illinois,  The Rock  Island  Bank,  N.A. in  Illinois  and Budget  Group Inc. (a
division of Budget Rent-A-Car).

   Portfolio Acquisition Program

     To enhance the Company's growth and as a natural  extension of its lines of
business,  in May 1996, the Company began  purchasing  Non-Prime  Consumer Loans
meeting  the  Company's  portfolio  acquisition   underwriting  guidelines  from
Third-Party Originators.  Purchasing selected Loans from Third-Party Originators
enables the  Company to acquire  Loans at a lower cost than  comparable  quality
Dealer-originated  Loans due to decreased origination expense. In many cases the
Company  has the  opportunity  to  acquire  Loans  that have six month or longer
payment histories,  reducing the Company's  exposure to early Loan defaults.  In
addition,  the Company is able to capitalize on relationships  with Dealers that
have been  established by other smaller  finance  companies.  For the year ended
December  31, 1997,  the Company  purchased a total of $46.5  million  principal
amount  of  Loans  or  approximately  25% of its Loan  volume  from  Third-Party
Originators.  Although the purchase of Loans from  Third-Party  Originators is a
significant  component of the Company's overall business  strategy,  the Company
expects  to  continue  to focus on  Direct  Dealer  Originations  and  Strategic
Alliances, and will use the Portfolio Acquisition Program opportunistically.

The Loan Purchase Process From Dealers

     The Company  purchases  Loans  directly from Dealers and presently does not
make Loans directly to purchasers of automobiles. To be eligible for purchase by
the Company,  a Loan must have been originated by a Dealer that has entered into
a Dealer  Agreement.  When a retail  automobile buyer elects to obtain financing
from a Dealer,  an  application  is taken for  submission  by the  Dealer to its
financing sources.  Typically,  a Dealer will submit the buyer's  application to
more than one financing source for review.  The Company believes that a Dealer's
decision to finance the automobile  purchase with the Company,  rather than with
other  financing  sources,  is based upon the  Company's  relationship  with the
Dealer,  the Dealer's  analysis of the discounted  purchase price offered by the
Company for the Loan,  any  incentives  offered to the Dealer,  the  timeliness,
consistency  and  predictability  of the Company's  response,  and the Company's
ability  to fund Loan  purchases  typically  within 24 hours of  receipt  of all
required documentation.



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     Upon receipt of an application  from a Dealer,  the Company orders a credit
report on the  borrower  from one or more of the  three  major  national  credit
bureaus, "scores" the borrower's credit status using a proprietary scoring model
developed by the Company  with the  assistance  of Fair Isaac and Company,  Inc.
("Fair Isaac") and verifies the borrower's  employment,  residence and insurance
history.  If a Company loan officer  determines that the application  would meet
the  Company's  underwriting  criteria  subject to further  information  or with
modifications  to the  originally  proposed  terms of the Loan,  the Company may
request and review further  information and supporting  documentation  before it
decides to purchase a Loan.  When  presented  with an  application,  the Company
typically  notifies the Dealer within 75 minutes  whether it intends to purchase
the Loan.  The  discounted  price the Company will offer to pay the Dealer for a
particular  Loan  generally  varies based on the  perceived  credit-risk  of the
potential borrower as determined through the underwriting process.

     Typically,  once an application is approved, or, if approved conditionally,
upon  fulfillment of the required  stipulations,  and after  required  financing
documents are obtained by the Dealer and the Dealer  assigns the contract to the
Company,  the  Company  purchases  the  Loan and  then  records  its lien on the
vehicle.  The Company then commences  servicing the Loan,  including sending the
borrower monthly billing statements.

Credit Underwriting and Administration

   Target Market and Consumer Profile

     The  Company  seeks to  identify  customers  with  stable  and  predictable
incomes,  whose payments will be made in a timely and consistent  manner and who
fall into the "B-",  "C+" and "C" credit borrower  categories.  A description of
the credit rating categories used by the Company is set forth below:

Category

"A"      A consumer who has a long credit history with no defaults,  has been in
         the same  job for at  least 18  months  and can  easily  finance  a new
         automobile  purchase through a bank or captive finance subsidiary of an
         automobile manufacturer.

"B"      A Non-Prime Consumer who may have had some minor credit problems in his
         or her past,  or may not have been  employed  at his or her current job
         for 18 months. To finance a new or late-model used automobile,  the "B"
         credit  borrower  may not qualify for a loan from a bank,  but may have
         success  borrowing  from a captive  finance  subsidiary  and can access
         credit through an independent finance company.

"C"      A Non-Prime Consumer who may have an inconsistent  employment record or
         more  significant  or  unresolved  problems with credit in the past. To
         finance a late-model or older used automobile  purchase,  this borrower
         will  generally  not be able to obtain a loan  from a  captive  finance
         subsidiary  or a bank and will have to access  an  independent  finance
         company that lends to this market category.

"D"      A consumer who has  unfavorable  employment  history and serious credit
         problems, such as multiple personal bankruptcies.  This borrower's only
         choice is to  finance  his or her used  automobile  purchase,  which is
         often from an independent as opposed to a franchise dealer,  through an
         independent finance company that is active in this market segment.

     The Company targets  Non-Prime  Consumers who previously  established  good
credit  records  but who have  subsequently  experienced  non-repetitive  credit
problems  such as a personal  bankruptcy  due to illness,  loss of employment or
poor cash  management.  The Company's  target  customer is generally  anxious to
re-establish his or her credit and obtain transportation for employment.



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   Credit Evaluation Procedures

     The Company applies  uniform  underwriting  standards in purchasing  Loans.
These  standards have been developed and refined over the course of management's
years of experience in the automobile  finance industry.  The two most important
criteria   the  Company  uses  in   evaluating   a  Loan  are  the   applicant's
creditworthiness and the collateral value of the automobile.  The Dealer submits
the customer's credit  application to the Company's  headquarters in Boca Raton,
Florida, where the customer's creditworthiness is reviewed. The Company utilizes
a proprietary credit scoring system initially  developed by Fair Isaac to assist
it in  assessing a  customer's  creditworthiness.  Among the factors  taken into
account in this scoring system are an applicant's  credit bureau score (assigned
by one of the  major  credit  reporting  bureaus  to  all  persons  with  credit
histories),   job  and  residential  stability,  the  automobile  payment  as  a
percentage of income,  the type of  automobile,  a positive  payment  history on
other  loans,  an  acceptable  level of  derogatory  credit  and the amount of a
customer's downpayment,  which must be at least 10% of the purchase price of the
automobile.  The Company's  senior  underwriting  management  regularly  reviews
credit  decisions  made by the  Company's  Loan buyers to ensure  uniformity  in
underwriting standards.

     In addition to the  applicant's  credit  appraisal,  the Company also takes
into account  relevant  information  about the automobile  being  acquired.  The
Company  currently  does not finance  automobiles  that are more than five model
years  old or that  have in excess of  75,000  odometer  miles.  Currently,  the
maximum  term of any Loan  purchased  by the  Company  is 60  months;  a shorter
maximum  term may be applied  based on the year and  mileage of the  automobile.
These criteria are subject to change from time to time as circumstances warrant.
The  Loans  must be  secured  by a first  priority  lien on the  automobile.  In
addition,  each Loan requires the borrower to maintain physical damage insurance
covering the financed automobile.  The Company may,  nonetheless,  suffer a loss
upon theft of or physical  damage to any  financed  automobile  if the  borrower
fails to  maintain  insurance  as  required by the Loan and is unable to pay for
repairs to or replacement  of the  automobile or is otherwise  unable to fulfill
his  obligations  under  the  Loan.  The  Company  believes  that its  objective
underwriting  criteria enable it to evaluate effectively the creditworthiness of
Non-Prime  Consumers and the adequacy of the financed automobile as security for
a Loan. See Item 7 "Management's  Discussion and Analysis of Financial Condition
and Results of Operations-Loan Loss and Delinquency  Experience" for a numerical
analysis of the Company's Loan loss and delinquency experience.

   Approval and Funding Statistics

     From the Company's  inception on October 1, 1994 through December 31, 1997,
the Company  reviewed  225,781  applications,  of which 29.65% were  approved or
conditionally   approved   and  9.11%  were   funded.   Conditionally   approved
applications are applications by Non-Prime  Consumers whose underlying credit is
generally  acceptable  to the  Company  but with  respect  to which the  Company
requires a modification  of terms  (typically  monthly  payment levels) prior to
final credit approval.

   Portfolio Acquisition Underwriting

     The Company's  Portfolio  Acquisition  Program seeks to establish  on-going
relationships  with Third-Party  Originators from which the Company will be able
to purchase select portions of their Loan portfolio.  The Company  considers the
most important factor in establishing  such a relationship to be the Third-Party
Originator's underwriting criteria. The Company focuses on purchasing Loans from
a Third-Party Originator whose credit scoring and other underwriting  guidelines
would produce obligors whose credit characteristics match those of the Company's
Dealer-originated  obligors  as  closely as  possible.  As of the filing of this
Annual Report,  the Company has approved nine Third-Party  Originators as repeat
participants in the Portfolio Acquisition Program.

     Management  values each Loan in a portfolio based on a proprietary  pricing
matrix,  which  determines  whether  the  Company  is  willing  to pay an amount
representing,  for example,  a 1.0% or 4.0%  discount to the value of the Loans.
While  the  Company  normally  acquires  portfolios  at some  discount,  in some
instances,  because of the high quality of the portfolio,  it will pay par for a
portfolio.  Management  does not  generally  pay the  Third-Party  Originator  a
premium for a  portfolio,  although  after  costs such as  brokerage  fees,  the
Company's  total  acquisition  cost may  slightly  exceed  the face value of the
purchased  Loans.  The  Company's   expenses  necessary  to  generate  Portfolio
Acquisition Program


<PAGE>








Loans,  however, have been generally lower than those incurred to generate Loans
through Direct Dealers Originations or Strategic Alliances.

   Contract Servicing and Administration; Collection Policy

     Since its inception, the Company has contracted with an outside servicer to
perform all of the  servicing  functions  relating to its  Servicing  Portfolio,
including  collection,  customer  service  and  management  information  systems
("MIS")  functions.  In July 1997, the Company began a staged  transition of the
daily  management of its Servicing  Portfolio  from the outside  servicer to its
in-house servicing and collection division in Jacksonville, Florida. The Company
is now  performing  all  collection  functions  with  respect  to its  Servicing
Portfolio and expects to begin performing  customer service and MIS functions in
the second quarter of 1998. The Company's  outside servicer is assisting in this
transition.  The Company  believes the  potential  benefits  from  developing an
in-house  servicing and collection  capability  include:  (i) improved portfolio
performance through  self-management of all aspects of its operations;  and (ii)
enhanced access to portfolio data,  resulting in improved management  reporting.
Although  there  can  be  no  assurances,  management  believes  that  portfolio
performance will continue to improve as the Company  completes its transition to
in-house servicing and collections.

   Management Information Systems

     The Company  currently  uses computer  systems and software  provided by an
outside  servicer to automate  Loan  originations  and  servicing but expects to
transition to its own computer system in the second quarter of 1998. The Company
is in the process of  installing  in its Boca Raton,  Florida and  Jacksonville,
Florida  facilities the Consumer Loan Asset Backed Security System ("CLASS") for
the  underwriting  and  servicing  of  its  Servicing  Portfolio.   CLASS  is  a
fully-integrated  finance company software platform composed of separate modules
integrating loan origination,  loan servicing,  operational  accounting and loan
securitization  functions.  The Company's advanced computer systems will provide
the Company with the ability to track all Loan details and identify trends among
customers.  This information will provide dynamic credit analysis  capabilities,
thereby  refining the credit  underwriting  process and reducing the chance that
Loans will be purchased from  unacceptably  higher risk  customers.  The Company
believes that the CLASS software platform is year 2000 compliant.

Servicing Portfolio Profile

   Loan Statistical Profile

     The table below sets forth an analysis  of Loans  purchased  by the Company
from inception through the dates specified. The Company has increased the number
of Loans in its  portfolio  since its inception  while  maintaining a consistent
profile of key Loan parameters.



<PAGE>




<TABLE>
<CAPTION>

                                                                 As of
           --------------------------------------------------------------------------------------------------------------------
           Dec.31,   Mar.31,  Jun.30,  Sep.30,  Dec.31,  Mar.31,  Jun.30,  Sep.30,  Dec.31,  Mar.31,  Jun.30,  Sep.30,  Dec.31,
            1994      1995     1995     1995     1995     1996     1996     1996     1996     1997     1997     1997     1997
<S>        <C>      <C>     <C>       <C>       <C>      <C>     <C>       <C>       <C>       <C>      <C>     <C>      <C>    

Cumulative
 number of
 Loans
 purchased     300    1,095   2,015     3,018     3,886    5,071   6,557     8,423    10,675    13,553   17,382  21,589   26,078

Cumulative
 average Loan
 amount
 funded    $11,986  $11,626 $11,578   $12,025   $12,121  $12,023 $11,942   $11,913   $11,999   $12,026  $11,826 $11,842  $11,925

Weighted
 average initial
 annual
 percentage
 rate         17.83%  18.38%  18.43%    18.35%    18.31%   18.41%  18.50%    18.63%    18.67%    18.80%   18.97%  19.04%   19.01%

Weighted
 average initial
 term
 (months)     54.6    52.1    51.9      52.3      52.5     52.0    53.6      53.7      51.7      53.6     53.3    53.3     53.4

Cumulative
 average initial
 yield        21.17%  21.73%  21.78%    21.56%    21.45%   21.50%  21.68%    21.75%    21.80%    21.51%   21.25%  21.06%   20.87%

</TABLE>


   New vs. Used Automobile Loans

     The Company prefers to finance used automobiles  because of the significant
depreciation  on new  automobiles  relative  to used  automobiles,  which  has a
disproportionately  negative  impact  on  recoveries  if  a  new  automobile  is
repossessed,  and the fact  that the  Company  is  permitted  to  charge  higher
interest  rates under  certain  state laws on the  purchase  of used  automobile
Loans.  The following  table  illustrates  the  composition  of the new and used
automobile collateral represented in the Servicing Portfolio:

                                   (As of December 31, 1997)
                      --------------------------------------------
                                                        Percentage
                                   Percentage            of Total
                                    of Total    Number    Number
                      Principal    Principal      of        of
                       Balance      Balance     Loans      Loan
                                     (in thousands)

       New..........  $ 61,209       26.98%      4,381     20.98%
       Used.........   165,637       73.02%     16,505     79.02%
                      --------     -------     -------     -----
           Total....  $226,846      100.00%     20,886    100.00%
                      ========     =======     =======    ======

     Geographic Distribution of Loans

     As of December 31,  1997,  the Company  purchased  Loans from Dealers in 29
states and the  aggregated  Loan balance of the three states  having the largest
concentrations of business of the Company totaled 51% of the Servicing Portfolio
compared to 65% of the Servicing  Portfolio as of December 31, 1996. The Company
intends to continue to increase its volume of business in the states in which it
currently operates and to expand into additional states.




<PAGE>








     The list below indicates the geographic  distribution of Loans  outstanding
as of December  31, 1997 based upon the location of the Dealer  originating  the
Loan:

<TABLE>
<CAPTION>
                                      Principal    Percentage of     Number of
                                       Balance   Principal Balance  Active Loans
<S>                                   <C>               <C>            <C>   
       Georgia......................  $  58,205         25.66%         5,217 
       North Carolina...............     37,682         16.61          3,182
       Florida......................     20,597          9.08          2,108
       Texas........................     16,563          7.30          1,296
       South Carolina...............     16,442          7.25          1,533
       Virginia.....................     11,541          5.09          1,005
       California...................      9,303          4.10            961
       Tennessee....................      6,458          2.85            507
       Pennsylvania.................      5,562          2.45            761
       Maryland.....................      4,715          2.08            403
       New Jersey...................      3,803          1.68            279
       New York.....................      3,196          1.41            240
       All other states (1).........     32,779         14.44          3,394
                                       --------        ------         ------
          Total.....................   $226,846        100.00%        20,886
                                       ========        ======         ======
------------------------
<FN>

(1)  No state other than those listed  represents  more than 1% of the Servicing
     Portfolio.
</FN>
</TABLE>


Securitization Program

     The Company  currently  funds its  purchases of Loans  primarily  through a
two-step  asset  securitization   program  consisting  of  (i)  the  securitized
warehousing  of all of its  Loans  through  their  daily  sale  (the  "Revolving
Securitization")  to a  bankruptcy-remote  master  trust  (the  "Master  Trust")
financed  by  a  revolving   credit  facility  with  First  Union  (the  "Master
Securitization  Credit  Facility"),  followed  by  (ii)  the  transfer  of  such
warehoused  Loans  from time to time by the  Master  Trust to a  discrete  trust
("Permanent  Securitizations"),  thereby  creating  additional  availability  of
capital from the Master Trust.

     Specifically,  pursuant to the Revolving Securitization,  the Company sells
Loans that it has purchased  from Dealers on a daily basis to a  special-purpose
subsidiary,  which then sells the Loans to the Master Trust in exchange for cash
and  certain  residual  interests  in future  excess  cash flows from the Master
Trust.   The  Master  Trust,  to  date,  has  issued  two  classes  of  investor
certificates:   "Class  B  Certificates,"  which  are  variable  funding  (i.e.,
revolving)  certificates  bearing  interest  at  floating  rates,  and  "Class C
Certificates,"  representing a portion of the residual interest of the Company's
special-purpose  subsidiary  in future  excess cash flows from the Master  Trust
after required payments to the holders of the Class B certificates,  deposits of
funds to a restricted  cash  account as a reserve for future Loan losses,  which
provides   additional  credit  enhancement  for  the  holders  of  the  Class  B
Certificates,  and payment of certain  other  expenses  and  obligations  of the
Master  Trust.  First  Union  currently  owns  100% of the  outstanding  Class B
Certificates   in   connection   with  its  role  as  lender  under  the  Master
Securitization Credit Facility.  See Note 13, Related Party Transactions,  for a
discussion of relationships with First Union. Collectively,  the restricted cash
account and the Class C Certificate portion of Loan principal that collateralize
the Master Trust are  components of the Company's  cash spread  accounts  ("Cash
Spread  Accounts"),   over-collateralization  accounts  ("Over-Collateralization
Accounts") and excess spread receivables ("Excess Spread Receivables" or "ESRs")
reflected   cumulatively   on  the  balance   sheet  as  Retained   Interest  in
Securitizations.

     Since the Company's  inception through March 31, 1998, the Master Trust has
transferred an aggregate of $277.4 million of its receivables  through Permanent
Securitizations  effected  pursuant to one private  placement  and three  public
offerings of asset-backed securities.  Payment of principal of, and interest on,
$252.4  million  of the  securities  issued in such  transactions  is insured by
payment guarantees issued by Financial Security Assurance Inc. ("FSA"), and such
securities are rated AAA and Aaa by Standard and Poor's Rating Group ("S&P") and
Moody's Investors Service


<PAGE>








("Moody's"),   respectively.  The  proceeds  of  each  Permanent  Securitization
transaction  were applied by the Master  Trust to  repayment of the  outstanding
balance  of the Class B  Certificates.  Since such  time,  the Master  Trust has
issued additional  beneficial  interests in Loans purchased by the Master Trust,
as evidenced by the Class B Certificates,  to finance its purchase of Loans from
the Company. The Company's  securitization program requires additional Permanent
Securitizations  (or other forms of refinancing) to be consummated in the future
in order to  refinance  periodically  amounts  outstanding  under  such  Class B
Certificates.

     The Company has acted as master  servicer for the Loans sold to each of the
trusts.  As master  servicer the Company is eligible to receive  monthly fees at
base rates of 2.0% per annum from the Permanent  Securitization  trusts and 4.0%
per annum from the Master Trust,  plus certain late fees and prepayment  charges
received on the securitized Loans. All collection  functions with respect to the
Loans included in the Master Trust and the Permanent  Securitization  trusts are
performed by the Company.

     The  Company  relies in large  part on cash flow from the  Master  Trust to
support  its  operations.  Since the Master  Trust's  interest  rates  under the
Revolving  Securitization  are floating and the  interest  rates  charged on the
Loans (which are generally at or near the maximum rates  permitted by applicable
state laws) are fixed,  increases in the interest rates incurred with respect to
the Class B Certificates could have a material adverse effect both on cash flows
from the  Master  Trust  and on the  Company's  net  income,  thereby  adversely
affecting the Company's financial condition and results of operations.  In order
to mitigate the negative impact of rising  interest rates,  the Master Trust has
entered into interest rate swap agreements,  which have the effect of fixing the
rates charged on a portion of the Master  Trust's  indebtedness.  Although these
agreements  provide the Master Trust (and therefore the Company) some protection
against rising interest rates,  these agreements also reduce the benefits to the
Master Trust (and  therefore to the Company) when  interest  rates decline below
the rates set forth in such agreements.  In addition,  upon refinancing of Loans
through  Permanent  Securitizations,  the  interest  spread with respect to such
refinanced Loans may be fixed.




<PAGE>









                  Flow Chart of Two-Step Securitization Program

    The  diagram  below  (which  omits  certain  intermediate  steps)  generally
illustrates the Company's securitization of a Loan:

                                [GRAPHIC OMITTED]

<PAGE>








Competition

     The Non-Prime Consumer credit market is highly fragmented,  consisting of a
few national and many  regional and local  competitors.  Existing and  potential
competitors include well-established financial institutions,  such as commercial
banks,  credit  unions,  savings and loan  associations,  small loan  companies,
leasing   companies   and  captive   finance   companies   owned  by  automobile
manufacturers  and  others.   Many  of  these  financial   institutions  do  not
consistently  solicit  business in the Non-Prime  Consumer  credit  market.  The
Company  believes  that captive  finance  companies  generally  focus on new car
financing and direct their  marketing  efforts to the Non-Prime  Consumer market
only when inventory control and/or production  scheduling  requirements of their
parent organization  dictate a need to enhance sales volumes,  and then exit the
market once such sales volumes are satisfied; recently, however, both Ford Motor
Credit  Company and  General  Motors  Acceptance  Corporation  have  established
Non-Prime Consumer finance companies.  The Company also believes that regulatory
oversight and capital requirements imposed by governmental agencies have limited
the activities of many banks and savings and loan  associations in the Non-Prime
Consumer  credit market.  As a result,  the Non-Prime  Consumer credit market is
primarily  serviced by smaller finance  companies that solicit business when and
as  their  capital  resources  permit.  Due to the  lack  of  major,  consistent
financing  sources  and the  absence  of  significant  barriers  to entry,  many
companies have entered this market in recent years,  including  well-capitalized
public companies.  Recent entrants include General Electric Capital Corporation,
whose indirect  finance program  consists of  relationships  with several small,
regional  independent  Non-Prime  Consumer  automobile  finance  companies.   In
addition,  Mellon  Bank  Corporation,   KeyCorp,  Southern  National  Corp.  and
Household  International  Inc.  have  all  recently  devoted  resources  to  the
Non-Prime  Consumer  market.  In addition,  there have been several  independent
finance companies that have also recently entered the market.

     The Company  believes that no one competitor or group of competitors  has a
dominant presence in the Non-Prime Consumer market segment of "B-," "C+" and "C"
credit consumers.  The Company's  strategy is designed to capitalize on the lack
of a major national financing source in this market niche.

Regulation

     The Company's business is subject to regulation and licensing under various
federal, state and local statutes and regulations.  As of December 31, 1997, the
Company had  contractual  relationships  with Dealers  located in 29 states and,
accordingly,  the laws and  regulations  of such  states  govern  the  Company's
operations.  Most  states in which  the  Company  purchases  Loans (i) limit the
interest  rate,  fees and other  charges  that may be imposed  by, or  prescribe
certain other terms of, the Loans that the Company purchases and (ii) define the
Company's right to repossess and sell  collateral.  In addition,  the Company is
required to be licensed or registered to conduct its finance operations in 19 of
the 29 states in which the Company has  contractual  relationships  with Dealers
and  Third-Party  Originators.  As the Company expands its operations into other
states, it will be required to comply with the laws of such states.

     Numerous federal and state consumer protection laws and related regulations
impose substantive  disclosure  requirements upon lenders and servicers involved
in automobile  financing.  Some of the federal laws and regulations  include the
Truth-in-Lending  Act,  the Equal  Credit  Opportunity  Act,  the Federal  Trade
Commission  Act,  the  Fair  Credit  Reporting  Act,  the Fair  Debt  Collection
Practices  Act, the  Magnuson-Moss  Warranty  Act, the Federal  Reserve  Board's
Regulations B and Z and the Soldiers' and Sailors' Civil Relief Act.

     In addition,  the Federal Trade Commission ("FTC") has adopted a limitation
on the holder-in-due-course rule which may have the effect of subjecting persons
who finance consumer credit  transactions (and certain related lenders and their
assignees) to all claims and defenses that the  purchaser  could assert  against
the  seller  of the  goods  and  services.  With  respect  to  used  automobiles
specifically,  the FTC's Rule on Sale of Used Vehicles requires that all sellers
of used automobiles prepare,  complete and display a Buyer's Guide that explains
the warranty  coverage for such  automobiles.  The Credit Practices Rules of the
FTC impose  additional  restrictions  on sales  contract  provisions  and credit
practices.

     Certain states in which the Company operates have adopted automobile retail
installment  sale acts or variations  thereof.  Certain  states have adopted the
Uniform  Consumer  Credit  Code,  subject  to certain  variations.  This law and
similar laws in the other states in which the Company  purchases Loans regulate,
among other things, the interest rate,


<PAGE>








fees and other charges and terms and  conditions of such Loans.  These laws also
impose restrictions on consumer transactions and require disclosures in addition
to  those  required  under  federal  law.  These  requirements  impose  specific
statutory  liabilities upon creditors who fail to comply.  In addition,  certain
states  impose   plain-language   restrictions  on  the  textual  provisions  of
automobile retail  installment sales contracts in the context of consumer credit
transactions.  Furthermore,  certain  states or  municipalities  require  that a
creditor   provide  a  purchaser  of  an  automobile  with  a   foreign-language
translation of the entire motor vehicle retail  installment sale contract if the
contract was negotiated in a language other than English. The plain-language and
foreign-language  laws impose  specific  liabilities on creditors who fail to so
comply.

     The laws of certain states grant to the  purchasers of automobiles  certain
rights  of  rescission  under  so-called  "lemon  laws."  Under  such  statutes,
purchasers  of  automobiles  may be able  to seek  recoveries  from,  or  assert
defenses against, the Company.

     In the event of default by an obligor,  the Company has all the remedies of
a  secured  party  under the  Uniform  Commercial  Code  ("UCC"),  except  where
specifically  limited by other state laws. The remedies of a secured party under
the UCC include the right to repossession by self-help means,  unless such means
would  constitute a breach of the peace. In the event of default by the obligor,
some  jurisdictions  require  that the obligor be notified  and be given time in
which to cure the  default  prior to  repossession.  In  addition,  courts  have
applied general equitable principles to secured parties pursuing repossession or
litigation involving deficiency balances.

     The UCC and other state laws  require a secured  party who has  repossessed
collateral to provide an obligor with  reasonable  notice of the date,  time and
place of any public sale  and/or the date after  which any  private  sale of the
collateral may be held. The obligor has the right to redeem the collateral prior
to actual sale.

     The  proceeds  from the resale of financed  automobiles  generally  will be
applied  first  to the  expenses  of  repossession  and  resale  and then to the
satisfaction  of the Loan.  A  deficiency  judgment can be sought in most states
subject to  satisfaction  of statutory  procedural  requirements  by the secured
party and certain  limitations as to the initial sale price of the  automobiles.
Certain  state laws require the secured party to remit the surplus to any holder
of a lien with respect to the automobiles or, if no such lienholder  exists, the
UCC requires  the secured  party to remit the surplus to the former owner of the
financed automobiles.

     In addition to laws limiting or prohibiting deficiency judgments,  numerous
other statutory provisions,  including federal bankruptcy laws and related state
laws,  may  interfere  with or affect  the  ability  of the  Company  to recover
collateral or enforce a deficiency judgment.

     The  Company  believes  that  it  is in  substantial  compliance  with  all
applicable  material  laws  and  regulations.  Adverse  changes  in the  laws or
regulations to which the Company's business is subject, or in the interpretation
thereof, could have a material adverse effect on the Company's business. Because
the Company  generally  charges the highest  finance  charges  permitted by law,
reductions  in  statutory  maximum  rates could  directly  impair the  Company's
profitability.

Banking Regulation

     As part of the First  Union  Alliance,  an  affiliate  of First  Union (the
"First  Union  Partner")  has  acquired an indirect  equity stake in the Company
through the Company's principal stockholder, National Auto Finance Company, L.P.
To facilitate the First Union Partner's compliance with applicable banking laws,
regulations  and orders  (collectively,  the  "Banking  Laws"),  the Company has
agreed  that it will  engage  solely  in  activities  that are  permissible  for
national  banks as determined  by Banking Laws in effect from time to time.  For
example, the Company is subject to the supervision and examination of the Office
of the Comptroller of the Currency (the "OCC"), one of the principal  regulatory
bodies having jurisdiction over First Union and the First Union Partner. The OCC
has reviewed the First Union Strategic  Alliance and the terms thereof,  and the
OCC's  written  approval  was  required in order for the First  Union  Strategic
Alliance to be  consummated.  If the First  Union  Partner  determines  that any
proposed  activities of the Company are  impermissible  for national banks, such
affiliate has the right to prevent the Company from engaging in such activities.


<PAGE>








Management  does  not  believe,  however,  that the  Banking  Laws  will  impact
significantly  the manner in which the Company  intends to conduct or expand its
business or product and service  offerings  although  there can be no  assurance
that the banking laws will not have such an effect.



<PAGE>








Employees

     At December 31, 1997, the Company had 164 full- and part-time  employees in
the following areas:  executive/administration  (13), sales (24),  finance (12),
operations  (38), MIS (7) and servicing  (70), none of whom was represented by a
union.

Item 2.  Properties.

     The  Company's   principal   executive   offices,   where  its  centralized
underwriting  function is conducted,  are located at 621 N.W. 53rd Street,  Boca
Raton,  Florida 33487. The Company currently leases  approximately 18,000 square
feet of office space at that location.  The Company's  servicing  operations are
located at 10302 Deerwood Park Boulevard, Jacksonville, Florida 32257, where the
Company  currently  leases  approximately  44,000 square feet of office space at
that  location.  The  Company  believes  its  properties  are  adequate  for its
currently anticipated future growth.

Item 3.  Legal Proceedings.

     The  Company  may be  involved  from  time to time  in  routine  litigation
incidental to its business.  The Company  believes  that it is not,  however,  a
party to any pending litigation that is likely to have a material adverse effect
on its financial condition or results of operations.

Item 4.  Submission of Matter to a Vote of Security Holders.

     No matters were  submitted  during the fourth  quarter of 1997 to a vote of
security holders, through the solicitation of proxies or otherwise.

                                   PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters.

(a)  Market Information.

     In  connection  with the  initial  public  offering  (the  "Initial  Public
Offering") of the Company's  common stock, par value $.01 per share (the "Common
Stock"),  in January  1997,  the Common Stock was accepted for  quotation in the
National Association of Securities Dealers Automated Quotation System - National
Market System ("NASDAQ-NMS"). The Common Stock is quoted in NASDAQ-NMS under the
symbol "NAFI."

    Set forth  below is the  range of high and low bid  quotations  reported  in
NASDAQ-NMS  for the period  from  January  30,  1997 (the date on which  trading
commenced) through and including December 31, 1997:

                     Common Stock Market Prices
          --------------------------------------------------
          1st Q*         2nd Q          3rd Q          4th Q
          -----          -----          -----          -----
  High   $9.875         $7.625          $7.50          $7.50
  Low    $7.00          $5.50           $6.125         $2.375

 *January 30 - March 31, 1997

(b)  Holders.

     As of April 10, 1998, there were approximately 25 registered holders of the
Common Stock.



<PAGE>








(c)  Dividends.

     The Company has never paid cash  dividends and has no present  intention of
paying cash  dividends on the Common  Stock.  Pursuant to the  Revolving  Credit
Agreement dated as of September 29, 1997, between the Company,  BankBoston, N.A.
and  the  other  financial   institutions  parties  thereto,  as  amended,  (the
"BankBoston  Agreement"),  the Company is not  permitted to pay dividends to the
holders of its Common  Stock.  Similarly,  pursuant to the  Securities  Purchase
Agreement dated December 22, 1997, by and among the Company,  The 1818 Mezzanine
Fund, L.P, P.C. Investment  Company,  Progressive  Investment Company,  Inc. and
Manufacturers  Life Insurance Company  (U.S.A.),  as amended (the "December 1997
Securities  Purchase  Agreement"),  and the Securities  Purchase Agreement dated
March 22, 1998, by and between the Company and The Structured Finance High Yield
Fund L.L.C.  (the "March 1998 Securities  Purchase  Agreement" and collectively,
with the December 1997 Securities Purchase Agreement,  the "Securities  Purchase
Agreements"),  the  Company's  ability to pay dividends in excess of $250,000 to
holders of the Company's Common Stock in any twelve-month period is restricted.

(d)  Recent sales of unregistered securities.

     Pursuant to the Securities Purchase Agreements, the Company issued and sold
$40 million aggregate  principal amount of Senior Subordinated Notes and related
warrants  exercisable for 1,038,924  shares of Common Stock in December 1997 and
$20 million aggregate  principal amount of Senior Subordinated Notes and related
warrants  exercisable  for 593,761 shares of Common Stock in March 1998. In each
case the warrants were sold as a unit with the Senior Subordinated Notes for the
aggregate  principal amount of the Senior  Subordinated  Notes.  Each warrant is
exercisable  for one  share of  Common  Stock at an  exercise  price of $.01 per
share. In addition, pursuant to the December 1997 Securities Purchase Agreement,
the Company sold  1,904,762  shares of Common Stock at a purchase price of $5.25
per share.  None of the sales of securities  involved a public offering and each
was effected pursuant to Section 4(2) of the Securities Act of 1933. Each of the
purchasers  of the  foregoing  securities  was  either an  investment  fund,  an
insurance  company or an  affiliate  of an insurance  company.  In addition,  in
October 1997, the Company issued 100,000 shares of Common Stock to FSA Portfolio
Management Inc. ("FSA  Portfolio")  pursuant to an Investment  Agreement between
the Company and FSA Portfolio for certain  non-cash  consideration  specified in
the agreement. The shares were issued pursuant to Section 4(2) of the Securities
Act of 1933.



<PAGE>








Item 6.  Selected Financial Data.

     The income statement data for the years ended December 31, 1994, 1995, 1996
and 1997 and the balance sheet data as of December 31, 1994, 1995, 1996 and 1997
are derived  from,  and are  qualified  by reference  to, the audited  financial
statements  of the Company (and from  inception  through  January 29, 1997,  its
predecessor).  The following financial information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations,"  "Business"  and the  Consolidated  Financial  Statement  and notes
thereto included elsewhere in this filing.


                (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.)


<PAGE>

<TABLE>
<CAPTION>
                                                            Year Ended December 31,
                                                           1997            1996             1995             1994
                                                            (dollars in thousands except per share data)
<S>                                                   <C>              <C>                <C>             <C>
INCOME STATEMENT DATA:
Securitization related income (loss)                  $      (323)     $    13,564        $     7,367(1)  $        --
Servicing income                                            3,437              866                219              --
Interest income                                               817              258                 11              32
Other income                                                  214              103                214(3)           95
                                                      -----------      -----------        -------------    -----------
Total revenue                                               4,145           14,791              7,811             127
                                                      -----------      -----------        -------------    -----------
External servicing expenses                                 3,355            1,291                371               6
Internal servicing expenses                                 2,589               --                 --              --
Interest expense                                            1,638            1,204                498              78
Salaries and employee benefits                              6,346            3,634              1,666             223
Direct loan acquisition expenses                            3,591            1,924                562(2)            22
Depreciation and amortization                                 743              492                183               7
Other operating expenses                                    3,602            1,755(2)           1,250(2)           266(3)
                                                      -----------      -----------        -------------    -----------
Total expenses                                             21,864           10,300              4,530              602
                                                      -----------      -----------        -------------    -----------
Income (loss) before income taxes and
  extraordinary item                                      (17,719)           4,491              3,281             (475)
Income taxes                                                   --               --                 --              --
                                                      -----------      -----------        -------------    -----------
Income (loss) before extraordinary item                   (17,719)           4,491              3,281             (475)
Extraordinary loss (4)                                       (720)              --                 --              --
                                                      -----------      -----------        -------------    -----------
Net income before preferred stock dividends               (18,439)           4,491              3,281             (475)
Preferred stock dividends                                    (148)              --                 --              --
                                                      -----------      -----------        -------------    -----------
Net income (loss) available for common
    stockholders                                      $   (18,587)     $     4,491        $     3,281     $       (475)
                                                      ===========      ===========        ===========      ===========
PER SHARE DATA:
Loss per common share before extraordinary item -     $     (2.52)
basic
Extraordinary item                                          (0.10)
                                                      -----------
Loss per common share - basic                         $     (2.62)
                                                      ===========

Loss per common share before extraordinary item -     $     (2.52)
diluted
Extraordinary item                                          (0.10)
                                                      -----------
Loss per common share - diluted                       $     (2.62)
                                                      ===========

Weighted average shares outstanding - Basic             7,087,000
Weighted average shares outstanding - Diluted           7,087,000
PROFORMA SHARE DATA (UNAUDITED):
Income (loss) before income taxes                     $        --      $     4,491        $     3,281     $       (475)
Income taxes                                                   --            1,689              1,066              --
                                                      -----------      -----------        -------------    -----------
Pro Forma net income                                  $        --      $     2,802        $     2,215     $       (475)
                                                      ===========      ===========        ===========      ===========
PRO FORMA NET INCOME PER SHARE:
Basic                                                 $        --             0.66               0.52 (5)        (0.11)
Diluted                                               $        --             0.66               0.52 (5)        (0.11)
PRO FORMA WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING (6)
Basic                                                          --            4,230              4,230            4,230
Diluted                                                        --            4,230              4,230            4,230

</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                                                            Year Ended December 31,
                                                 --------------------------------------------------
                                                   1997          1996          1995          1994
                                                 --------      --------      --------      --------
                                                              (dollars in thousands)
<S>                                              <C>           <C>           <C>           <C>
BALANCE SHEET DATA:
Cash                                             $ 26,647      $  5,066      $    824      $  1,590
Retained interest in securitizations               31,569        23,404        10,313            25
Total assets                                       64,875        31,201        12,003         5,800
Senior subordinated debt                           34,546        12,000            --            --
Junior subordinated debt                            1,940         7,122         7,457         5,324
Total long-term debt                               36,486        19,122         7,457         5,324
Total liabilities                                  41,581        21,650         8,556         5,775
Mandatorily redeemable preferred stock              2,336            --            --            --
Partners' preferred equity                             --         2,295           482            48
Partners' equity                                       --         7,256         2,965           (23)
Stockholders' equity                             $ 20,958      $     --      $     --      $     --

OTHER DATA:
Number of Loans purchased during period            15,403         6,789         3,586           300
Principal balance of Loans purchased
  during period                                  $187,383      $ 84,981      $ 45,972      $  3,820
Cumulative number of Loans purchased               26,078        10,675         3,886           300
Cumulative principal balance of Loans
  purchased                                      $322,156      $134,773      $ 49,792      $  3,820
Number of outstanding Loans at end of
  period                                           20,886         9,063         3,586           300
Principal balance of the Servicing Portfolio
  at end of period                               $226,846      $102,852      $ 43,145      $  3,800
Delinquencies as a percentage of the
  Servicing Portfolio (7)                            9.75%         7.95%         5.45%         0.00%
Repossession inventory as a percentage
  of the Servicing Portfolio (8)                     2.18%         2.20%         1.28%         0.00%
Net charge-offs during the period
  as a percentage of the
  average Servicing Portfolio (9)                    6.34%         4.17%         2.76%         0.00%
</TABLE>


<PAGE>




-------------------

(1)  Includes  $639,000 of gains on sales of Loans purchased between October 12,
     1994 and January 16, 1995 and sold to the Master Trust on January 16, 1995.
(2)  Expenses relating to originating a Loan such as Dealer incentive  payments,
     travel  and   entertainment   costs  for  the  Dealer  Relation   Managers,
     advertising  and printing  costs for Loan documents and Dealer manuals have
     been reclassified as direct loan acquisition  expenses from other operating
     expenses to conform with current year presentation.
(3)  Other  income in 1995 and other  expenses in 1994  include a $182,000  loan
     loss  provision,  representing  5.0% of the $3.6  million  of Loans  funded
     during the three months ended  December 31, 1994.  The reserve was reversed
     when  the  Loans  were  sold to the  Master  Trust  on  January  15,  1995.
     Subsequently,  all reserves are  accounted for by the Master Trust as Loans
     are sold to the trust on a daily basis.
(4)  Extraordinary  item due to early  extinguishment  of $12,000,000  aggregate
     principal amount of senior  subordinated notes (the "Morgan Notes") held by
     certain trusts and accounts managed by Morgan Guaranty and Trust Company of
     New York in December 1997.
(5)  Includes  approximately  $0.15 per share  attributable  to gain on sales of
     Loans purchased  between October 12, 1994 and January 16, 1995, sold to the
     Master Trust on January 16, 1995.
(6)  Shares  outstanding are pro forma for all periods other than the year ended
     December 31, 1997. The number of shares  utilized  represents the number of
     shares granted to the Company's predecessor,  National Auto Finance Company
     L.P. in conjunction with the Reorganization (as defined herein) and Initial
     Public Offering on January 29, 1997.
(7)  Represents  the  principal  amount of Loans more than 30 days past due as a
     percentage  of the principal  balance of the Servicing  Portfolio at end of
     period.
(8)  Represents  the  outstanding  principal  balance  of  Loans in  respect  of
     financed  automobiles that were repossessed by the Company and were held as
     inventory at end of period as a percentage  of the  Servicing  Portfolio at
     end of period.
(9)  Net charge-offs  include the remaining  principal  balance of Loans written
     off, after the  application of the net proceeds from the liquidation of the
     repossessed automobiles.



<PAGE>








     Item 7.  Management's  Discussion  and Analysis of Financial  Condition and
Results of Operations.

     The  following  management's  discussion  and  analysis  should  be read in
conjunction  with the  preceding  "Selected  Financial  Data" and the  Company's
Consolidated  Financial Statements and the notes thereto and the other financial
data  included  elsewhere  in this  Annual  Report on Form 10-K.  The ratios and
percentages  provided below are calculated using detailed financial  information
contained in the Company's Financial Statements, the notes thereto and the other
financial data included under Item 8 of this Annual Report on Form 10-K.

Overall

     The  Company is a consumer  finance  company  engaged  in the  business  of
purchasing, financing, securitizing and servicing non-prime automobile Loans.

     The Company  currently  finances its purchases of Loans primarily through a
two-step  asset  securitization   program  that  involves  (i)  the  securitized
warehousing  of  substantially  all of its Loans through their daily sale to the
Master  Trust  pursuant  to the  Revolving  Securitization  followed by (ii) the
transfer  of  such  warehoused  Loans  from  time  to  time  through   Permanent
Securitizations.  In connection with the securitization of the Loans sold by the
Company,  the Company is required  to  establish  and  maintain  certain  credit
enhancements  to support the timely  payment of interest  and  principal  on the
bonds and notes issued to investors by the securitization  trusts,  which credit
enhancements  include,  among  other  things,  funding  and  maintaining  spread
accounts,  which are  monies  held on  deposit  ("Cash  Spread  Accounts"),  and
maintaining  a  residual  interest  in the  pools  of  receivables  held by such
securitization  trusts   ("Over-Collateralization   Accounts").   The  following
discussion summarizes the effect of the Company's  securitization  activities on
its revenues, expenses and cash flows.

     Revenues.  In January  1997,  the Company  adopted  Statement  of Financial
Accounting  Standards  No. 125,  "Accounting  for  Transfers  and  Servicing  of
Financial  Assets and  Extinguishment  of Liabilities"  ("SFAS No. 125").  Since
then,  the  Company  has  undertaken  a  continuing   process  of  refining  the
assumptions  and  methodologies  used to measure the fair value of its  Retained
Interest in  Securitizations  based upon the historical  performance of its Loan
portfolio.  Most recently, this process of refinement has resulted in changes to
certain  assumptions and methodologies  previously employed in each of the first
three  quarters of fiscal  1997.  Specifically,  the Company has  increased  the
cumulative  net loss  estimate from 7.0% in fiscal 1996 to 12.88% in fiscal 1997
and increased the


<PAGE>








discount  rate  applied to present  value the  Company's  Retained  Interest  in
Securitizations  from 11% in fiscal 1996 to 14% in fiscal 1997.  The increase in
the cumulative net loss estimate  results  primarily from an increase in default
rates  expected to be  experienced  over the life of the Loans,  lower  expected
recovery  rates on the underlying  collateral and changes in prepayment  speeds,
compared to the rates of such items estimated in earlier  periods.  The increase
in discount rate results from an increase in the perceived market rate of return
commensurate  with the risk  inherent in the cash flow  projected  to be derived
from  such  assets.  These  changes  in  assumptions  and  methodologies  are  a
significant  factor  in the loss  incurred  by the  Company  for the year  ended
December 31, 1997. See "--Results of Operations."

     The Company anticipates that these refinements and changes in methodologies
will also  require a  restatement  of the results of  operations  of each of the
first,  second  and  third  quarters  of 1997 to  allocate  the  effects  of the
adjustment derived therefrom appropriately throughout such quarters.

     The Company  receives monthly  payments from the  securitization  trusts in
cash as a fee paid for the Company's servicing of the Loans. Servicing income is
recognized  when earned and  typically  offsets the direct  expenses the Company
incurs in connection with the servicing of the Servicing Portfolio. Finally, the
Company also earns interest income on its cash  investments  (including the Cash
Spread  Accounts)  and from Loans it  temporarily  holds for sale pending  their
securitization. Unlike many of its competitors, the Company earns only a nominal
amount of  interest  on Loans  held for sale  because  the  Company  securitizes
substantially  all of its  Loans  on a daily  basis  and,  therefore,  generally
recognizes a higher level of gain on sales of Loans than such competitors.

     Distributions of Cash from  Securitizations.  When the Company  securitizes
Loans,  it is  required to  establish  and  maintain  credit  enhancements  on a
trust-specific  basis to support the timely payment of interest and principal on
the notes  issued to  investors  by such  securitization  trusts,  which  credit
enhancements  include,  among other  things,  funding and  maintaining  the Cash
Spread Accounts and maintaining the  Over-Collateralization  Accounts.  The Cash
Spread Accounts are funded through initial cash deposits by the Company,  plus a
portion of the excess cash flows from the Loans (that is, the difference between
cash received by the relevant  trust and its interest and principal  payments on
the  asset-backed  securities  and trust  expenses).  Once the funds in the Cash
Spread Accounts meet specified levels (which may be increased if the performance
of the  relevant  Loan pool  deteriorates),  any  subsequent  excess  cash flows
thereafter  will be released to the Company on a monthly  basis.  Any  remaining
cash in the Cash Spread  Accounts after the  asset-backed  securities  have been
paid in full also will be  released  to the  Company.  The amount of excess cash
available  for  distribution  to the Company  will be affected by the  Servicing
Portfolio's actual loss and prepayment  experience.  See Note 3 to the Financial
Statements - Retained Interest in Securitizations.



<PAGE>








     The table below sets forth  certain  information  relating to the Company's
Loan purchasing activities:

                                              Year Ended December 31,
                                        ---------------------------------
                                          1997         1996         1995
                                        --------     --------     -------
                                               (dollars in thousands)

Number of Loans purchased..............   15,403        6,789       3,586
Principal balance of Loans purchased... $187,383      $84,981     $45,972
Principal amount of Loans funded(1)....  182,900       80,956      43,505
Securitization related income (loss)...     (323)      13,564       7,367(2)
Servicing income.......................    3,437          866         219

------------------------
(1) Amount  funded  represents  the price at which the Company  purchases a Loan
    from a Dealer or Third-Party Originator (i.e., the amount actually paid to a
    Dealer or Third-Party  Originator),  calculated as the principal of the Loan
    purchased less the Dealer Discount.
(2) Includes  $639,000 of gain on sales of Loans  acquired  between  October 12,
    1994 and January 16, 1995 and sold to the Master Trust on January 16, 1995.

Results of Operations

     The Company  reported a net loss available to common  shareholders of $18.6
million for the year ended December 31, 1997,  compared to $2.8 million and $2.2
million of net income available to common shareholders  (including the pro forma
impact of income taxes of $1.7 million and $1.1 million,  respectively)  for the
years  ended  December  31,  1996 and  1995,  respectively.  The loss in 1997 is
primarily  the result of: (a) the impact of changes in  assumptions  relating to
the calculation of gain on sale of loans and the valuation of Retained  Interest
in  Securitizations,  including an increase in estimated  cumulative  net losses
from 7% in 1996 to 12.88% in 1997 and an increase in


<PAGE>








the discount rate applied to present value the  Company's  Retained  Interest in
Securitizations  from 11% in 1996 to 14% in 1997;  (b) the  present  valuing  at
December 31, 1997, in  conjunction  with the  implementation  of SFAS No. 125 on
January 1, 1997, of the Company's Spread Accounts,  that include the Cash Spread
Accounts and Over-Collateralization Accounts and is a component of the Company's
Retained Interest in Securitizations;  (c) start-up and duplicative  expenses in
the  aggregate  amount of $2.6 million in 1997,  associated  with the  Company's
transition from an outside servicer to in-house servicing, including the opening
of a  44,000-square-foot  service  center  in  Jacksonville,  Florida;  (d)  the
expensing in 1997 of $720,000  relating to the early  extinguishment  of certain
senior  subordinated debt; and (e) the expensing in 1997 of $700,000 relating to
the  modification  of certain  terms of payment  guarantee  agreements  with the
Company's securitized trusts insurer.

   Securitization Related Income (Loss)

     The  Company's   Loan   purchasing   and  servicing   operations   expanded
significantly  during the year ended  December 31,  1997,  compared to the years
ended December 31, 1996 and 1995. The Company  purchased 15,403 Loans,  having a
principal  balance of $187.4  million,  during the year ended December 31, 1997,
compared to 6,789 Loans,  having a principal  balance of $85.0 million,  for the
year ended December 31, 1996 and 3,586 Loans having a principal balance of $46.0
million for the year ended December 31, 1995. These Loan purchases  consisted of
10,354 Loans purchased from Dealers ($140.9 million principal balance) and 5,049
Loans purchased from Third-Party  Originators  ($46.5 million principal balance)
during the year ended December 31, 1997.  This compares to 6,324 Loans purchased
from Dealers  ($80.2  million  principal  balance) and 465 Loans  purchased from
Third-Party  Originators ($4.8 million principal  balance) during the year ended
December  31,  1996 and  3,586  Loans  purchased  from  Dealers  ($46.0  million
principal  balance)  during the year ended December 31, 1995. For the year ended
December  31, 1997,  the Company  recognized  a  securitization  related loss of
$323,000.  Notwithstanding  a 120% increase in dollar volume of Loans  purchased
during the year ended December 31, 1997,  gain on sale of Loans decreased due to
a $21.5  million  pre-tax  adjustment  to Retained  Interest in  Securitizations
resulting from the reasons described in "-Overall-Revenues" above.

     The Company's gain on sale model includes an amount equal to an estimate of
cumulative net losses to be experienced  with respect to the Loans  securitized.
Significant  changes  in such  cumulative  net  loss  estimate  will  result  in
adjustments to the carrying value of Retained  Interest in  Securitizations.  In
1997, the Company experienced significant servicing and collection problems with
the Servicing  Portfolio,  which the Company  believes  resulted  primarily from
deficiencies  in  the  servicing  and  collection  performance  of  its  outside
servicer.  The Company believes that these performance  deficiencies are largely
responsible  for the  increase in  delinquency  and net loss  experience  of the
Servicing Portfolio throughout the year ended December 31, 1997. In response


<PAGE>








thereto,  the Company's  estimates for Loan losses were increased to 12.0% as of
October 1, 1997,  and 12.88% as of December 31,  1997,  compared to 7.0% for the
year  ended  December  31,  1996.   The  Company  began   assuming   collections
responsibility  for Loans more than 30 days past due in July 1997,  and  assumed
responsibility  for collections of the entire Servicing  Portfolio on October 1,
1997.  Since  initiating  self-management  of  collections  in  July  1997,  the
outstanding  principal balance of Loans that were more than 30 days past due has
decreased to 9.7% of the Company's  Servicing Portfolio as of December 31, 1997,
from 10.1% as of June 30, 1997 and was 8.18% as of February 28,  1998.  Although
there can be no  assurances,  management  believes  that this  improvement  will
continue as the Company  completes  its  transition  to in-house  servicing  and
collections later in the second quarter of 1998.

   Servicing Income

     The Company receives a servicing fee in cash of  approximately  4.0% of the
principal  amount  of the  Loans  sold to the  Master  Trust  and  2.0%  for the
principal   amount   of  the   Loans   subsequently   sold   to  the   Permanent
Securitizations,  which typically offsets actual servicing  expenses incurred by
the Company.  This income is recognized  when earned.  Servicing  income for the
years ended  December 31,  1997,  1996 and 1995 was $3.4  million,  $866,000 and
$219,000,  respectively.  The growth in servicing income was attributable to the
increase in the size of the Servicing Portfolio.

   Other Income

     Other income consists of interest income on cash investments (including the
Cash Spread Accounts), other income and finance charges earned. The other income
for the years ended December 31, 1997, 1996 and 1995 was $1.0 million,  $361,000
and $225,000,  respectively.  The increase in other income in 1997 was primarily
attributable  to interest  earned on the net proceeds of the  Company's  Initial
Public Offering, pending utilization thereof.

   Total Expenses

     The Company  reported total expenses for the years ended December 31, 1997,
1996 and 1995 of $21.9  million,  $10.3 million and $4.5 million,  respectively.
These expenses consisted primarily of interest expense on long-term indebtedness
including  the  Company's  senior  subordinated  notes,  salaries  and  employee
benefits,  direct  Loan  acquisition  expenses  and  servicing  expenses.  Total
expenses,  as a percentage  of the average  principal  balance of the  Servicing
Portfolio,  decreased from 19.2% as of December 31, 1995 to 13.7% as of December
31, 1997.



<PAGE>









     External servicing expenses for the years ended December 31, 1997, 1996 and
1995 were $3.3 million, $1.3 million and $371,000, respectively. Servicing costs
consisted primarily of a monthly fee to an outside servicer for each active Loan
and the cost of vendor's single  interest  ("VSI")  insurance  maintained by the
Company.  Servicing  fees paid to the Company's  outside  servicer for the years
ended  December  31,  1997,  1996 and 1995 were $2.8  million,  $1.1 million and
$326,000,  respectively.  The increase in servicing expenses primarily reflected
the growth in the Servicing  Portfolio.  The Company's  Servicing Portfolio grew
from a $43.1 million Servicing  Portfolio,  representing 3,586 outstanding loans
as of December 31, 1995, to a $102.9 million Servicing  Portfolio,  representing
9,063  outstanding  Loans,  as of  December  31,  1996,  and further to a $226.8
million  Servicing  Portfolio,  representing  20,886  outstanding  Loans,  as of
December 31, 1997.  The Company will  continue to pay its outside  servicer fees
during the period of transition to the full servicing and MIS operations,  which
is expected to be  completed  later in the second  quarter of 1998.  Thereafter,
servicing  expenses  will  decline  but will be  partially  replaced by internal
servicing expenses.

    The Company has assumed  responsibility for collecting all of its Loans, and
anticipates assuming responsibility for all other servicing of its Loans and MIS
operations in the second quarter of 1998.  Internal servicing expenses consisted
primarily of salaries and other operating expenses totaling $2.6 million for the
year ended December 31, 1997. In addition, the Company capitalized approximately
$336,000 of costs related to  construction of the service center and development
of software  during the year ended  December  31,  1997.  The Company  commenced
operations  in its own  internal  servicing  during  July  1997 and had hired 74
employees as of December 31, 1997. The internal servicing expenses will continue
to grow as the transition to in-house servicing continues.

     Interest  expense for the years ended December 31, 1997,  1996 and 1995 was
$1.6 million, $1.2 million and $498,000,  respectively. The increase in interest
expense  on debt for each  year  resulted  from the  increasing  long-term  debt
balances of the Company.

     Salaries and employee  benefits for the years ended December 31, 1997, 1996
and 1995  were  approximately  $6.3  million,  $3.6  million  and $1.7  million,
respectively.  The  increase  in each of the years  resulted  from the number of
full-time  employees,  excluding  employees involved in internal servicing whose
salaries and  employee  benefits  expenses  are  reported as internal  servicing
expenses,  increasing  from 38 as of December 31, 1995, to 67 as of December 31,
1996, and to 90 as of December 31, 1997. The increase in the number of employees
resulted  from the growth in the number of Loans  purchased  and serviced by the
Company.  These expenses consisted primarily of salaries and wages,  performance
incentives, employee benefits and payroll taxes. The Company


<PAGE>








expects  that its  number of  full-time  employees  will  continue  to  increase
commensurate with the growth of the Company.

     Direct Loan  acquisition  expenses  for the years ended  December 31, 1997,
1996 and 1995 were $3.6 million, $1.9 million and $562,000,  respectively. These
expenses  consisted  primarily  of Dealer  incentives,  fees  paid to  Strategic
Alliance partners,  broker fees, credit information fees and telephone expenses.
The expenses  have  increased as a result of the increase in the number of Loans
acquired by the Company over these three periods.

     Other  operating  expenses for the years ended December 31, 1997,  1996 and
1995 were $3.6  million,  $1.8  million and $1.2  million,  respectively.  These
expenses consisted primarily of telecommunications,  travel,  professional fees,
insurance  expenses and MIS expenses.  The increase in other operating  expenses
primarily  reflects the growth in the number of Loans  purchased and serviced by
the Company,  the hiring of additional personnel and other costs associated with
the growth of the Company.

Extraordinary Item

     The Company expensed the remaining  balance of deferred  financing costs of
approximately  $720,000 associated with the placement of the Morgan Notes due to
the early extinguishment of that debt in December 1997.

Loan Loss and Delinquency Experience

     Loan losses and Loan prepayments are  continuously  monitored on an overall
portfolio and month-of-purchase  static pool basis. Pursuant to the requirements
of SFAS No.  125,  the  Company  reviews  its  actual  Loan loss  experience  in
conjunction  with its quarterly  revaluation  of the carrying  value of Retained
Interest   in   Securitizations.   Charge-off   policies   are  based   upon  an
account-by-account  review  of  delinquent  Loans  by the  Company.  The  Trusts
generally  charge off a Loan at the time its related  collateral is  liquidated,
although  certain Loans may be charged off sooner if management deems them to be
uncollectable.


<PAGE>









    The following table summarizes the Company's loan loss experience:

                                                  As of December 31,
                                        ----------------------------------------
                                           1997          1996             1995
                                        ---------      --------         --------
                                                (dollars in thousands)

Average Servicing Portfolio during
   period..............................  $158,737      $769,025         $23,565
Gross charge-offs......................    17,355         6,313           1,447
Liquidation proceeds from
   repossessed assets..................    (7,294)       (3,435)           (797)
                                         --------      --------         -------
Net charge-offs........................  $ 10,061      $  2,878         $   650
                                         ========      ========         =======
Net charge-offs as a percentage of
average Servicing
   Portfolio...........................      6.34%         4.17%           2.76%
                                         ========      ========         =======

     In 1997,  the Company  experienced  significant  servicing  and  collection
problems  with the  Servicing  Portfolio,  which the Company  believes  resulted
primarily from serious deficiencies in the servicing and collection  performance
of  its  outside   servicer.   The  Company  believes  that  these   performance
deficiencies are largely responsible for the Servicing  Portfolio's  delinquency
ratio  increasing  from 8.0% at  December  31,  1996 to 10.1% at June 30,  1997,
which,  in turn,  caused an event of default  in April 1997 under the  Company's
Insurance and Indemnity Agreement with Financial Security Assurance Inc. ("FSA")
with  respect to the 1995  Permanent  Securitization  and the failure to satisfy
certain  FSA  performance  tests  with  respect  to the 1995 and 1996  Permanent
Securitizations.   (See  further   discussion   in   "--Liquidity   and  Capital
Resources").  The Company began assuming  collections  responsibility  for Loans
more  than 30 days  past  due in  July  1997,  and  assumed  responsibility  for
collections of the entire  Servicing  Portfolio on October 1, 1997,  although it
continues to use its outside  servicer for customer  service and MIS  functions.
The Company  expects to begin customer  service and MIS operations  later in the
second quarter of 1998.  During the transition  period when its outside servicer
continues  to  provide  customer  service  and MIS  services  for the  Servicing
Portfolio,  the  Company  will  experience  increased  costs  and  will not have
complete self-management of the quality and timeliness of servicing efforts.



<PAGE>








     Prior to July 1997,  the Company had not  serviced or  collected  Loans and
therefore  continues  to be  subject  to  the  inherent  risks  associated  with
initiating  new  operations,  such  as  unforeseen  operational,  financial  and
management problems.  There can be no assurance that the Company will be able to
service and collect the Servicing Portfolio on a cost effective and timely basis
or that future delinquency and loss ratios will not increase.

     The gain on sales of Loans the Company recognizes from the sale of Loans to
the Master Trust, and the cash flow from its  securitizations  are substantially
dependent  on  the  Servicing  Portfolio's  delinquency  and  loss  performance.
Increase in delinquencies and losses may result in: (i) increased capital and/or
credit  enhancement  requirements for  securitizations;  (ii) reductions in cash
flow to the Company; and (iii) additional violations of Permanent Securitization
performance tests.  Consequently,  the Company's failure to effectively  service
and collect the Servicing  Portfolio could have a material adverse effect on the
Company's financial condition,  results of operations and cash flows. See Note 3
to the Financial Statements - Retained Interest in Securitizations.

     Since  October  1994,  the  Company  has  maintained,  at its own  expense,
supplemental  VSI  insurance  that  protects  the  Company's  interest  in  Loan
collateral against uninsured physical damage (including total loss) in instances
where neither the automobile nor the borrower can be found.


<PAGE>









     The Company considers a Loan to be delinquent if the borrower fails to make
any payment  substantially in full on or before the due date as specified by the
terms of the Loan. The Company typically  initiates contact with borrowers whose
payments are not received by the fifth day following the due date. The following
table summarizes the delinquency and repossession experience with respect to the
Servicing Portfolio:

                                                 As of December 31,
                                        ----------------------------------------
                                          1997             1996           1995
                                        --------         --------       --------
                                                  (dollars in thousands)
Period of delinquency
  31 to 60 days ........................ $14,316           $6,104        $2,148
  61 to 90 days ........................   3,458            1,596           157
  91 days or more ......................   4,343              487            46
                                         -------           ------        ------
Total delinquencies .................... $22,117           $8,187        $2,351
                                         =======           ======        ======
Total delinquencies as a percentage
  of the Servicing Portfolio ...........    9.75%            7.95%         5.45%
Principal balance of Loans related to
  repossession inventory................ $ 4,935           $2,266        $  553
Repossession inventory as a percentage
  of the Servicing Portfolio............    2.18%            2.20%         1.28%

     Management  believes that the payment practices of Non-Prime  Consumers are
partially a function of seasonality.  Because Non-Prime Consumers typically have
low disposable incomes, they frequently tend to fall behind in payments on their
Loans during the early winter months,  when the holiday season generates demands
for  their  limited  disposable  income  and  when  these  borrowers   encounter
weather-related work slow-downs. As a result, absent unforeseen circumstances,


<PAGE>








management expects delinquencies to be highest in the first calendar quarter and
the fourth calendar  quarter of each year.  Generally,  there is a 60 to 120-day
lag between initial delinquency and charge-off.

     The Company  monitors  historical loss  experience on an overall  portfolio
basis and on a static pool basis. Loans acquired and sold to the Master Trust in
each calendar month are segregated  into  individual  static pools.  The Company
considers a pool of Loans to be "seasoned"  when it has been aged for an average
of 18 to 24 months.  Actual pool losses are  compared to the  estimates  for net
losses,   and  adjustments  to  the  carrying  value  of  Retained  Interest  in
Securitizations for the effect of any additional losses will be reflected in the
current period earnings.




<PAGE>








     The following  tables  summarize the vintage  static pools of the Company's
Servicing  Portfolio  for all Loans  purchased  by the  Company  from  inception
through the period ending  September 30, 1997, and include net loss data through
December 31, 1997 for Loans for which collateral has been liquidated:

                            PERIOD OF ORIGINATION

               Cumulative Net Losses as Percentage of Original
                Principal Balance of Loans Sold During Period

<TABLE>
<CAPTION>
  Months
   From           4Q        1Q      2Q      3Q      4Q       1Q      2Q      3Q      4Q      1Q      2Q      3Q
Origination      1994      1995    1995    1995    1995     1996    1996    1996    1996    1997    1997    1997
                 ----      ----    ----    ----    ----     ----    ----    ----    ----    ----    ----    ----
<S>  <C>           <C>      <C>     <C>     <C>     <C>      <C>     <C>     <C>     <C>     <C>     <C>     <C>
     1             0.00%    0.00%   0.00%   0.00%   0.00%    0.00%   0.00%   0.00%   0.00%   0.00%   0.00%   0.00%
     2             0.00%    0.00%   0.00%   0.00%   0.00%    0.00%   0.00%   0.00%   0.00%   0.00%   0.00%   0.00%
     3             0.00%    0.00%   0.00%   0.00%   0.05%    0.00%   0.00%   0.04%   0.00%   0.00%   0.00%   0.02%
     4             0.00%    0.00%   0.00%   0.03%   0.17%    0.00%   0.00%   0.04%   0.01%   0.02%   0.17%   0.02%
     5             0.00%    0.07%   0.00%   0.19%   0.21%    0.10%   0.10%   0.16%   0.00%   0.06%   0.43%   0.07%
     6             0.05%    0.14%   0.27%   0.43%   0.70%    0.39%   0.31%   0.45%   0.25%   0.23%   0.93%   0.22%
     7             0.05%    0.24%   0.67%   0.88%   0.96%    0.60%   0.63%   0.79%   0.61%   0.58%   1.40%
     8             0.31%    0.86%   1.42%   1.24%   1.05%    0.80%   1.14%   1.06%   1.21%   1.19%   1.89%
     9             0.47%    1.34%   1.98%   2.18%   1.57%    1.38%   1.73%   1.92%   1.89%   1.90%   2.58%
    10             0.51%    1.70%   2.40%   2.35%   2.28%    1.81%   2.70%   2.59%   2.55%   2.34%
    11             1.08%    1.73%   2.62%   2.71%   2.40%    2.00%   3.29%   3.36%   3.40%   2.84%
    12             1.36%    2.52%   3.14%   3.11%   3.08%    2.43%   4.34%   3.65%   3.69%   3.45%
    13             1.75%    3.04%   3.37%   3.60%   3.48%    3.35%   5.19%   4.47%   4.02%
    14             1.72%    3.39%   3.71%   3.58%   3.69%    3.60%   5.58%   5.04%   4.53%
    15             3.12%    3.90%   3.99%   4.13%   4.24%    4.42%   6.00%   5.38%   5.12%
    16             3.21%    4.20%   4.27%   4.60%   4.58%    4.71%   6.50%   5.95%
    17             3.80%    4.52%   4.49%   4.98%   5.36%    5.38%   6.89%   6.37%
    18             4.45%    4.70%   5.01%   5.14%   5.52%    5.80%   7.19%   6.84%
    19             4.55%    4.94%   5.35%   5.49%   6.09%    6.68%   7.52%
    20             4.91%    5.18%   5.75%   5.96%   6.43%    6.95%   7.85%
    21             4.91%    5.77%   6.13%   6.46%   6.65%    7.16%   8.25%
    22             5.05%    5.75%   6.84%   6.76%   7.10%    7.60%
    23             5.05%    6.24%   7.44%   7.02%   7.51%    8.09%
    24             5.79%    6.34%   7.75%   7.10%   8.06%    8.24%
    25             5.78%    7.01%   8.28%   7.78%   8.34%
    26             6.20%    7.30%   8.52%   8.37%   8.62%
    27             6.80%    7.65%   8.66%   8.63%   8.82%
    28             7.15%    8.00%   9.08%   8.71%
    29             7.49%    9.02%   9.31%   8.86%
    30             8.06%    9.15%   9.36%   8.92%
    31             8.23%    9.73%   9.57%
    32             9.07%    9.90%   9.60%
    33             9.07%   10.08%   9.89%
    34             9.61%   10.07%
    35             9.89%   10.28%
    36            10.38%   10.59%
    37            11.44%
    38            11.48%
    39            11.81%
</TABLE>




     
<PAGE>








Liquidity and Capital Resources

   General

     Since  inception,  the Company has funded its  operations and the growth of
its Loan purchasing  activities  primarily  through six sources of capital:  (i)
cash  flows  from  operating  activities;   (ii)  proceeds  from  securitization
transactions;  (iii) cash flows from  servicing  fees;  (iv)  proceeds  from the
issuance of indebtedness; (v) capital contributions of certain affiliates of the
Company;  and (vi)  proceeds  from the  Company's  Initial  Public  Offering and
subsequent private issuances of Common Stock.

     The Company's  primary uses of cash are to fund: (i) Spread Accounts;  (ii)
securitizations;  (iii) Loan purchases; (iv) debt service; (v) issuance costs of
asset securitizations; and (vi) operating expenses.

     Net cash used in operating  activities increased by $18.3 million from $7.1
million in fiscal  1996 to $25.4  million  in fiscal  1997,  principally  due to
increased  operating  expenses  resulting  from the  growth of the  Company,  an
increase in the initial  cash  deposit to the Cash Spread  Accounts for the 1997
Permanent  Securitization,  the change in the credit enhancement requirements of
the Company's other securitization  facilities and the increase in the volume of
Loans  purchased.  The $4.1  million  increase in cash used in  operations  from
fiscal 1995 to fiscal 1996 was  principally due to the increase in the volume of
Loans purchased.

     Net cash  used in  investing  activities  increased  by $1.1  million  from
$377,000  in fiscal  1996 to $1.5  million in fiscal  1997,  principally  due to
purchases of furniture and equipment for the Company's service center.  Net cash
flows from investing  activities were  relatively  consistent in fiscal 1996 and
fiscal 1995.

     Net cash provided by financing  activities  increased by $36.6 million from
1997 to 1996.  Such increase was  primarily the result of the proceeds  received
from the Company's  Initial Public  Offering and subsequent  issuances of Common
Stock and debt,  including but not limited to $40 million of senior subordinated
notes in December 1997 and its indebtedness under the BankBoston Agreement.  Net
cash provided by financing  activities increased in fiscal 1996 from fiscal 1995
due to proceeds received from additional debt.

     The  Company is  required  to  maintain a minimum  equity  position  in the
Revolving  Securitization of 10.0% of the net serviced receivables.  This equity
currently consists of cash invested by the Company and over-collateralization in
the form of Dealer  Discounts  related to the principal  balance of Loans. As of
December 31, 1997,  the Company had a 10.01% equity  investment in the Revolving
Securitization.

     As of December 31, 1997, the Company retained  approximately  $16.7 million
of ESRs,  approximately  $6.0 million of Cash Spread Accounts and  approximately
$8.8 million of  Over-Collateralization  Accounts,  which combined represent the
$31.6   million   shown  on  the   balance   sheet  as   Retained   Interest  in
Securitizations,  representing 49% of the total assets of the Company. The value
of these assets would be reduced in the event of a future  material  increase in
the Loan  loss or  prepayment  experience  relative  to the  amounts  previously
estimated by the Company.


<PAGE>








     As of December 31 ,1997,  the  principal  amount owed by the Company on its
junior subordinated notes (the "Junior Subordinated Notes") was approximately $2
million  (including  $39,000 of accrued  interest),  which bear  interest  at an
annual rate of 8.0%, and the principal  amount owed by the Company on its senior
subordinated  notes (the "Senior  Subordinated  Notes") was $40.0  million.  The
Senior  Subordinated  Notes,  which mature in December 2004, bear interest at an
annual rate of 11.875% for the first three years,  and increase  thereafter.  On
March 22, 1998, the Company issued an additional $20 million aggregate principal
amount of senior  subordinated  notes  pursuant  to the  March  1998  Securities
Purchase  Agreement.  Such notes have the same terms as the Senior  Subordinated
Notes issued in December 1997.

     As  of  September  29,  1997,  the  Company  entered  into  the  BankBoston
Agreement,  a three-year,  $10.0 million  revolving  credit facility  secured by
Loans.  Originally,  the BankBoston Agreement permitted the Company to use up to
$8.0 million of that credit  facility for working  capital.  The working capital
portion of the line is no longer  available to the Company,  and has been repaid
in full. In addition,  at December 31, 1997, the Company was in violation of the
BankBoston  Agreement's  Minimum  Quarterly  Net Income and Minimum Debt Service
Coverage  covenants.  The Company cannot  continue to borrow in the future under
the BankBoston  Agreement unless such covenant breaches are waived. At April 24,
1998, there were no borrowings outstanding under the BankBoston Agreement.

     The Company's future liquidity and financial condition,  and its ability to
finance the growth of its business and to repay or refinance  its  indebtedness,
will depend  substantially  on distributions of excess cash flow from the Master
Trust and Permanent  Securitization  trusts.  The Company's  agreements with FSA
provide that each Permanent  Securitization trust must maintain specified levels
of cash in its Cash Spread  Account  during the life of the trust.  These spread
accounts  are  funded  initially  out  of  beginning  deposits  and  are  funded
thereafter with excess cash flow from the Loan pool.  During each month,  excess
cash flow distributable to the Company from all Permanent  Securitization trusts
is first used to  replenish  any Cash Spread  Account  deficiencies  and then is
distributed  to the Company.  The timing and amount of  distributions  of excess
cash from securitization  trusts varies based on a number of factors,  including
loan  delinquencies,  defaults  and  net  losses,  the  rate of  disposition  of
repossession  inventory and recovery  rates,  the age of Loans in the portfolio,
prepayment experience and required spread account levels. A deterioration of the
Company's  Loan  delinquencies,  defaults  or  net  losses,  or  a  build-up  in
repossession  inventory could reduce excess cash available to the Company. There
can be no  assurance  that in the  future the  Company  will not  experience  an
interruption in its receipt of excess cash flows,  which could adversely  affect
the Company's financial condition, results of operations and cash flows.

     Each Permanent Securitization trust has certain portfolio performance tests
relating to levels of delinquency,  defaults and net losses on the Loans in such
trust ("Maintenance  Tests").  Portfolio performance tests require that the Loan
portfolio  of  each  Permanent   Securitization   trust  have:  (i)  an  average
delinquency  rate less than a specified  percentage;  (ii) a cumulative  default
rate  less  than  specified  percentages  that  vary  based on the  aging of the
relevant  trust's Loan pool; and (iii) a cumulative net loss less than specified
percentages  that vary based on the aging of the relevant  trust's Loan pool. If
any Permanent Securitization Loan portfolio fails to satisfy any of these tests,
the amount of cash required to be retained in the Cash Spread Account related to
such securitization trust will be increased to an amount generally equal to 7.0%
of the  then  outstanding  balance  held by the  securitization  trust.  Certain
portfolio  performance  tests were not met at various times in 1997 with respect
to the  Permanent  Securitization  trusts  formed in November  1995 and November
1996, resulting in an additional $2.1 million of total cash being required to be
retained in the Cash Spread  Accounts  related to such Permanent  Securitization
trust until the violation of such  performance  tests are cured.  As of December
31,  1997,  a total of $1.5  million of such  additional  $2.1  million had been
accumulated  in the  Cash  Spread  Accounts  of such  trusts,  in lieu of  being
distributed to the Company. FSA has modified its portfolio  performance test for
such  trusts for the period  through  June 1998,  which has  resulted  in higher
thresholds to trigger further violations of such tests.

     Upon the occurrence of a Permanent Securitization failing to meet portfolio
performance  tests of the nature  described  above but at  significantly  higher
levels (an  "Insurance  Agreement  Event of  Default"),  the Company  will be in
default under its  insurance  agreements  with FSA. Upon an Insurance  Agreement
Event of Default, FSA may: (i)


<PAGE>








permanently  suspend  distributions of cash flow to the Company from the related
securitization  trust and all other  FSA-insured  trusts until the  asset-backed
securities  have been paid in full;  (ii)  capture  all  excess  cash flows from
performing FSA-insured trusts; (iii) increase its premiums; and (iv) replace the
Company as servicer with respect to all FSA-insured  trusts.  In April 1997, the
Permanent  Securitization trust formed in November 1995 experienced an Insurance
Agreement  Event of  Default.  In October  1997,  the  Company  entered  into an
agreement  with FSA  that:  (i)  permanently  waived  the April  1997  Insurance
Agreement  Event of Default,  thereby  permitting  distributions  of excess cash
flows to the Company;  (ii) modified the portfolio  performance  tests described
above  to  increase  the   thresholds   through  June  1998  for  the  Permanent
Securitization  trusts  formed in November  1995 and 1996;  (iii)  increased the
amount  required  to be  retained  in the Cash  Spread  Account  related  to the
November  1995 and 1996  trust to an amount  generally  equal to 11% of the then
outstanding  balance held by the securitization  trust if the modified portfolio
performance  tests are not met;  (iv)  required  the  Company  to cause the Cash
Spread   Account   for   each   FSA-insured    securitization    trust   to   be
cross-collateralized  to the Spread Accounts established in connection with each
of its other  FSA-insured  securitization  trusts;  (v) permitted the Company to
enter into the $10.0 million BankBoston Agreement;  (vi) provided that FSA would
consider   providing  credit   enhancement  for  the  Company's  next  Permanent
Securitization;  and (vii)  resulted in the issuance of 100,000 shares of Common
Stock  to  FSA  in   October   1997  .  As  a  result   of  the   aforementioned
cross-collateralization,  the  excess  cash flow from a  performing  FSA-insured
trust may be  required  to be used to support  negative  cash flow  from,  or to
replenish a deficient  Cash Spread Account in connection  with, a  nonperforming
FSA-insured  securitization  trust, thereby further restricting excess cash flow
available   to  the   Company.   If  excess  cash  flow  from  all   FSA-insured
securitization  trusts is not  sufficient  to  replenish  all these Cash  Spread
Accounts,  no cash flow would be  available  to the Company for that month.  The
Company's  right to service  the Loans sold in  FSA-insured  securitizations  is
generally  subject  to the  discretion  of  FSA.  Accordingly,  there  can be no
assurance  that the Company will continue as servicer for such Loans and receive
related servicing fees. Additionally,  there can be no assurance that there will
not be additional  Insurance Agreement Events of Default in the future, or that,
if such events of default occur, waivers will be available.

     In January and February 1998, certain modified portfolio  performance tests
were not met with  respect  to the  Permanent  Securitization  trusts  formed in
November  1995,  November  1996 and July 1997,  resulting  in the Company  being
required to retain an  additional  amount of $3.6  million over the $2.1 million
previously  required to be retained in the Cash Spread Accounts  related to such
Permanent Securitization trusts until the violation of such modified performance
tests are cured.  As of February  28, 1998, a total of $2.0 million of the total
$5.7  million  in  increased  spread  account  funding   requirements  had  been
accumulated  in the  Cash  Spread  Accounts  of such  trusts,  in lieu of  being
distributed to the Company.

     The following is a table showing the portfolio  performance  tests by trust
as of February 28, 1998:

<TABLE>
<CAPTION>
             Delinquency Test               Default Test                     Loss Test
     ----------------------------- -----------------------------  -----------------------------
     Actual  Maintenance Insurance Actual  Maintenance Insurance  Actual  Maintenance Insurance
     ------  ----------- --------- ------  ----------- ---------  ------  ----------- ---------
<S>   <C>       <C>        <C>      <C>        <C>       <C>       <C>       <C>        <C>  
95-1  10.49     10.00      12.00    18.11      20.00     25.00     8.36      10.50      12.00
96-1  11.49      9.75      12.00    20.76      20.00     25.00     8.35      10.00      12.00
97-1   8.51      8.25      11.00    20.17      18.00     25.00     8.70       8.00      11.00
98-1   4.54      8.25      11.50     3.23      18.00     25.00     0.00       8.00      12.20
                                                                              8.00     12.20
</TABLE>



<PAGE>








     Any  increase in  limitations  on cash flow  available  to the Company from
Permanent Securitization trusts, the Company's inability to obtain any necessary
waivers from FSA or the termination of servicing  arrangements  could materially
adversely affect the Company's  financial  condition,  results of operations and
cash flows.

     The  Company,  at  December  31,  1997,  was in  violation  of the  Minimum
Consolidated Net Worth and Adjusted Interest Expense covenants  contained in the
December  1997  Securities  Purchase  Agreement  pursuant  to  which  it  issued
$40,000,000 aggregate principal amount of Senior Subordinated Notes. The Minimum
Consolidated Net Worth covenant requires that the Company maintain  Consolidated
Net Worth (as defined) of not less than (a) $25,890,000 plus (b) on a cumulative
basis commencing with the first fiscal quarter ending March 31, 1998, 50% of net
income (if positive)  for each fiscal  quarter plus (c) 100% of the net proceeds
from any public  offering or private  placement  of common  stock.  The Adjusted
Interest Expense covenant  requires  generally that the sum of the Company's Net
Income (as defined), Consolidated Total Interest Expense (as defined) and income
and  franchise  taxes divided by its  Consolidated  Total  Interest  Expense (as
defined) for each period of four fiscal  quarters  ending  December 31, 1997 and
thereafter  be at least  1.4:1.  In addition,  the Company is default  under the
corresponding   covenants  contained  in  the  March  1998  Securities  Purchase
Agreement.  The  Company is in the  process of seeking  waivers of the breach of
such  covenants.   If  such  waivers  are  not  obtained,  the  holders  of  the
indebtedness  represented  thereby  may  declare a default  and  accelerate  the
payment of the principal amount of such indebtedness.

     The  Company,  at  December  31,  1997,  was in  violation  of the  Minimum
Quarterly Net Income and Minimum Debt Service  Coverage  covenants  contained in
the BankBoston  Agreement.  The Company is in the process of seeking a waiver of
such  covenant  breaches  and can not continue to borrow in the future under the
BankBoston  Agreement  unless such  covenant  breaches  are waived.  The Company
experienced  an  acceleration  in the use of cash during fiscal 1997 compared to
fiscal 1996,  due, in large part, to six factors:  (i) an increase in the volume
of Loans  purchased from Dealers;  (ii) a higher volume of Loans  purchased from
Third-Party  Originators;  (iii) a decrease in the average Dealer Discount; (iv)
costs associated with the implementation of the Company's internal servicing and
the corresponding  overlap of costs between the Company's internal servicing and
its outside servicer;  (v) an increase in the initial cash deposit to the spread
account  required  as a  credit  enhancement  for the  Permanent  Securitization
completed in July 1997; and (vi) a change in the credit support  requirements of
the Company's other  securitization  facilities,  which has resulted in, and may
continue in the future to result in,  additional  capital of the  Company  being
maintained  in the  spread  accounts  of  its  Permanent  Securitizations.  This
acceleration has continued in 1998.

     The Company's business requires  substantial cash to support the funding of
Cash  Spread  Accounts  for its  securitizations,  issuance  costs of its  asset
securitizations,  operating expenses, tax payments,  debt service and other cash
requirements.  These cash requirements increase as the number of Loans purchased
and serviced by the Company increase.  Historically, the Company has operated on
a negative  operating  cash flow basis and its negative  operating  cash flow is
expected  to continue  for the  foreseeable  future.  The Company has funded its
negative  operating cash flows principally  through borrowings under its secured
financing  facilities,  issuances  of  subordinated  debt and  sales  of  equity
securities.  The Company believes cash currently on hand should be sufficient to
meet the Company's  cash  requirements  and to fund its  operations  through the
third quarter of 1998,  assuming the Company completes  regular  securitizations
during that period and its lenders under the Securities  Purchase  Agreements do
not accelerate their indebtedness.  Thereafter,  the Company will be required to
issue   additional  debt  or  equity,   which  could  dilute  the  interests  of
stockholders  of the Company.  There can be no  assurance  that the Company will
have access to the capital markets in the future for debt or equity issuances or
for securitizations, or that financing through borrowings or other means will be
available on terms acceptable to the Company.  The Company's inability to access
the  capital  markets  or obtain  financing  on  acceptable  terms  could have a
material  adverse  effect  on the  Company's  financial  condition,  results  of
operations and cash flows.



<PAGE>








Fourth Quarter Adjustments

     During the fourth  quarter,  the  Company  reduced  securitization  related
income (loss by) $20.3 million to adjust  Retained  Interest in  Securitizations
and/or securitization related income (loss) at December 31, 1997.  Additionally,
the Company recorded an extraordinary  loss of $720,000 related to the write-off
of deferred financing costs associated with the Morgan Notes that were repaid in
the fourth quarter.

Inflation

     Increases in the rate of inflation of prices in the U.S. economy  generally
result in higher  interest rates.  Typically,  higher interest rates result in a
decrease in the Company's net interest  margins and a corresponding  decrease in
the  Company's  gain on sale revenue for a given Loan amount;  to the extent not
offset by increases in the volume of Loans  purchased,  inflation  can therefore
lead to decreases in the Company's profitability.

Year 2000

     The Company  currently  uses computer  systems and software  provided by an
outside  servicer to automate  Loan  originations  and  servicing but expects to
transition to its own computer system in the second quarter of 1998. The Company
is in the process of  installing  in its Boca Raton,  Florida and  Jacksonville,
Florida  facilities the Consumer Loan Asset Backed  Security  System (CLASS) for
the   underwriting   and   servicing   of  its  Loan   portfolio.   CLASS  is  a
fully-integrated  finance company software platform composed of separate modules
integrating loan origination,  loan servicing,  operational  accounting and loan
securitization  functions. The Company believes that the CLASS software platform
is year 2000  compliant.  The  Company is also in the  process of  installing  a
financial  accounting  software  package,  which the Company believes to be Year
2000   compliant.   There  can  be  no   assurance,   however,   that   software
incompatibility  with the year  2000 on the  part of the  Company  or any of its
significant suppliers will not have a material adverse effect on the Company.


<PAGE>








Item 8.  Financial Statements.

                                                                     Page

Independent Auditors' Report .....................................    32

Consolidated Balance Sheets as of December 31, 1997 and 1996......    33

Consolidated Statements of Operations for the years ended
  December 31, 1997, 1996 and 1995................................    34

Consolidated Statements of Stockholders' Equity for the
  years ended December 31, 1997, 1996 and 1995....................    35

Consolidated Statements of Cash Flows for the years ended
  December 31, 1997, 1996 and 1995................................    36

Notes to Consolidated Financial Statements........................    38




<PAGE>








                          Independent Auditors' Report


The Board of Directors and Stockholders
National Auto Finance Company, Inc.

We have audited the  accompanying  consolidated  balance sheets of National Auto
Finance Company, Inc. and subsidiaries  (formerly National Auto Finance Company,
L.P.  and  subsidiaries)  as of  December  31,  1997 and 1996,  and the  related
consolidated  statements of operations,  stockholders' equity and cash flows for
each of the years in the three  year  period  ended  December  31,  1997.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management, as well as evaluating the overall financial statement presentation.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
National Auto Finance Company, Inc. and subsidiaries as of December 31, 1997 and
1996, and the consolidated  results of their operations and their cash flows for
each of the years in the three year period ended December 31, 1997 in conformity
with generally accepted accounting principles.

As discussed in Note 1 to the  consolidated  financial  statements,  the Company
adopted the provisions of the Financial  Accounting  Standards Board's Statement
of  Financial  Accounting  Standards  No. 125,  "Accounting  for  Transfers  and
Servicing of Financial Assets and Extinguishments of Liabilities," in 1997.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will  continue as a going  concern.  As discussed in Notes 3, 4
and 14 to the consolidated  financial  statements,  in 1997 the Company suffered
losses from operations, experienced an Insurance Agreement Event of Default with
respect to its  securitizations,  and at December  31, 1997 was in  violation of
various  covenants  related to its  borrowings.  Such matters raise  substantial
doubt  about  the  Company's  ability  to  continue  as  a  going  concern.  The
consolidated  financial  statements  do not include any  adjustments  that might
result from the outcome of this uncertainty.

                                     KPMG PEAT MARWICK LLP

                                     /s/ KPMG Peat Marwick LLP

April 15, 1998
Fort Lauderdale, Florida


<PAGE>



                NATIONAL AUTO FINANCE COMPANY, INC.
                    CONSOLIDATED BALANCE SHEETS
                    DECEMBER 31, 1997 AND 1996
               (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                      1997          1996
                                                                                    --------      --------
<S>                                                                                 <C>           <C>
ASSETS:
Cash and cash equivalents                                                           $ 26,467      $  5,066
Retained interests in securitizations, at fair value                                  31,569        23,404
Furniture, fixtures and equipment                                                      2,262           515
Deferred financing costs                                                               2,539         1,849
Related party receivables                                                                155            --
Other assets                                                                           1,883           367
                                                                                    --------      --------
  Total assets                                                                      $ 64,875      $ 31,201
                                                                                    ========      ========

LIABILITIES:
Accounts payable and accrued expenses                                               $  3,260      $  1,771
Due to National Auto Finance Corporation                                                  --           178
Accrued interest payable-related parties                                                  39           144
Accrued interest payable-senior subordinated notes                                       132           339
Accrued interest payable-notes                                                            50            --
Junior subordinated notes-related parties                                              1,940         7,122
Senior subordinated notes                                                             34,546        12,000
Notes payable                                                                          1,614            96
                                                                                    --------      --------
  Total liabilities                                                                   41,581        21,650
                                                                                    --------      --------

Mandatorily redeemable preferred stock series A- $0.01 par value; $1,000 stated
  value; 1,000,000 shares authorized; 2,295 shares outstanding; redeemable in
  January 2005, stated at
  redemption value                                                                     2,336            --

STOCKHOLDERS' EQUITY:
Common stock-$0.01 par value; 20,000,000 shares authorized;
  9,030,762 shares outstanding                                                            90            --
Paid-in-capital                                                                       34,417            --
Accumulated deficit                                                                  (13,549)           --
Equity of predecessor entity                                                           9,551            --
                                                                                    --------      --------
  Total stockholders' equity                                                          20,958         9,551
                                                                                    --------      --------
  Total liabilities, mandatorily redeemable preferred stock
     and stockholders' equity                                                       $ 64,875      $ 31,201
                                                                                    ========      ========
</TABLE>

See accompanying notes to the consolidated financial statements.



<PAGE>

                NATIONAL AUTO FINANCE COMPANY, INC.
               CONSOLIDATED STATEMENTS OF OPERATIONS
       FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
               (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                1997          1996         1995
                                                              --------      --------     --------
<S>                                                           <C>           <C>          <C>
REVENUE:
Securitization related income (loss)                          $   (323)     $ 13,564     $  7,367
Servicing Income                                                 3,437           866          219
Interest income                                                    817           258           11
Other income                                                       214           103          214
                                                              --------      --------     --------
  Total revenue                                                  4,145        14,791        7,811
                                                              --------      --------     --------
EXPENSES:
External servicing expenses                                      3,355         1,291          371
Internal servicing expenses                                      2,589            --           --
Interest expense                                                 1,638         1,204          498
Salaries and employee benefits                                   6,346         3,634        1,666
Direct loan acquisition expenses                                 3,591         1,924          562
Depreciation and amortization                                      743           492          183
Other operating expenses                                         3,602         1,755        1,250
                                                              --------      --------     --------
  Total expenses                                                21,864        10,300        4,530
                                                              --------      --------     --------
Income (loss) before income taxes and extraordinary item       (17,719)        4,491        3,281
Income taxes                                                        --            --           --
                                                              --------      --------     --------
Income (loss) before extraordinary item                        (17,719)        4,491        3,281
Extraordinary loss due to early extinguishment of debt            (720)           --           --
                                                              --------      --------     --------
Net income (loss) before preferred stock dividends             (18,439)        4,491        3,281
Preferred stock dividends                                         (148)           --           --
                                                              --------      --------     --------
Net income (loss) available for common shareholders           $(18,587)     $  4,491     $  3,281
                                                              ========      ========     ========
PER SHARE DATA:
Loss per common share before extraordinary item - basic       $  (2.52)
Extraordinary item                                                (0.10)
                                                              --------
Loss per common share - basic                                 $  (2.62)
                                                              ========

Loss per common share before extraordinary item - diluted     $  (2.52)
Extraordinary item                                                (0.10)
                                                              --------
Loss per common share - diluted                               $  (2.62)
                                                              ========

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic                                                            7,087
Diluted                                                          7,087
PRO FORMA SHARE DATA (UNAUDITED):
  Income before income taxes                                  $     --      $  4,491     $  3,281
  Income taxes                                                $     --         1,689        1,066
                                                              --------      --------     --------
  Pro Forma net income                                        $     --      $  2,802     $  2,215
                                                              ========      ========     ========
  PRO FORMA NET INCOME PER COMMON SHARE:
  Basic                                                       $     --      $   0.66     $   0.52
  Diluted                                                     $     --      $   0.66     $   0.52
  PRO FORMA WEIGHTED AVERAGE:
  NUMBER OF SHARES OUTSTANDING
  Basic                                                             --         4,230        4,230
  Diluted                                                           --         4,230        4,230
</TABLE>

See accompanying notes to the consolidated financial statements.




<PAGE>



[OBJECT OMITTED]

                       NATIONAL AUTO FINANCE COMPANY, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                                    Equity of
                                                               Common      Paid-in    Accumulated  Predecessor
                                                               Stock       Capital       Deficit     Entity          Total
                                                               -----     -----------  ------------   ---------    ----------
<S>                                                            <C>         <C>         <C>         <C>         <C>
Balance as of December 31, 1994                               $            $            $            $      25     $     25
                                                                                                     ---------     --------
      Contribution                                                                                         141          141
      Net income                                                                                         3,281        3,281
                                                                                                     ---------     --------

Balance as of December 31, 1995                                                                          3,447        3,447
      Contributions                                                                                      1,613        1,613
      Net income                                                                                         4,491        4,491
                                                                                                     ---------     --------

Balance as of December 31, 1996                                                                          9,551        9,551
      Net income from January 1, 1997
       through reorganization on January 29, 1997                                                          526          526
      Assets retained by partnership                                                                       (31)         (31)
                                                                                                     ---------     --------

Balance as of January 29, 1997                                                                          10,046       10,046

Exchange of predecessor equity for stock
    in connection with reorganization on
    January 29, 1997                                                 42        7,709                   (10,046)(1)   (2,295)

Deferred income taxes recorded in connection
    with reorganization                                                       (5,416)                                (5,416)

Issuance of 496,000 shares of Common Stock in
    exchange for deferred interest on Senior
    Subordinated Notes                                                5          164                                    169

Issuance of 2,300,000 shares of common stock
    in initial public offering, net of costs                         23       16,817                                 16,840

Issuance of 100,000 shares of common stock to
    Financial Security Assurance Inc. for certain
    waivers relating to Permanent Securitizations                     1          699                                    700

Issuance of 1,904,762 shares of common stock                         19        9,138                                  9,157

Issuance of 1,038,924 Warrants to purchase
    Common Stock in connection with the
    issuance of Senior Subordinated Notes                                      5,454                                  5,454

Dividends on mandatorily redeemable preferred stock                             (148)                                  (148)

Net loss subsequent to reorganization                                                    (13,549)                   (13,549)
                                                               --------    ---------    --------       -------      -------
Balance as of December 31, 1997                                $     90    $  34,417   $ (13,549)       $    0      $20,958
                                                               ========    =========   =========       =======      =======

</TABLE>
----------------

(1) $2,295 of such amount was attributed to mandatorily redeemable preferred
stock.

See accompanying notes to consolidated financial statements.


<PAGE>



                       NATIONAL AUTO FINANCE COMPANY, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                         1997           1996           1995
                                                                      ---------      ---------      ---------
<S>                                                                   <C>            <C>            <C>
CASH FLOW OPERATING ACTIVITIES:
Net income (loss)                                                     $ (18,439)     $   4,491      $   3,281
  Adjustments to reconcile net income (loss) to net cash used in
   Operating activities:
   Securitization related income (loss)                                     323        (13,564)        (7,367)
   Depreciation expense                                                     223            137             38
   Purchases of loans held for sale                                    (182,898)       (77,865)       (43,146)
   Proceeds from transfer of loans to Master Trust                      182,898         77,865         41,774
   Cash flows from Retained Interest released to Company                 10,095          4,937          5,479
   Cash deposits to Spread Accounts                                     (18,564)        (4,630)        (3,369)
   Amortization and write-off of deferred financing costs                 1,024            355            144
   Amortization of deferred placement costs                                 254            167             --
   Changes in other assets and liabilities:
     Other assets                                                        (1,516)          (378)          (324)
     Accounts payable and accrued expenses                                1,489          1,481             97
     Accrued interest payable-related parties                              (105)          (388)           454
     Accrued interest payable-senior subordinated notes
       and other notes                                                     (157)           339             --
                                                                      ---------      ---------      ---------
Net cash used in operating activities                                   (25,373)        (7,053)        (2,939)
CASH FLOW FROM INVESTING ACTIVITIES:
   Fixed assets purchased                                                (1,524)          (377)          (297)
   Due from National Auto Finance Corporation                                --             --             99
                                                                      ---------      ---------      ---------
Net cash used in investing activities                                    (1,524)          (377)          (198)
                                                                      ---------      ---------      ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from junior subordinated notes-related parties                    --            700          2,337
  Principal Payments on junior subordinated notes-related parties        (5,182)          (997)          (104)
  Proceeds from notes payable                                             1,018             --             --
  Proceeds from senior subordinated notes                                37,834         11,172             --
  Principal payments on senior subordinated notes                       (12,000)            --             --
  Proceeds from BankBoston revolving credit facility                      7,996             --             --
  Principal payment on BankBoston revolving credit facility              (8,000)            --             --
  Principal payments on capital leases                                      (33)           (41)            --
  Payment of mandatorily redeemable preferred stock dividends              (107)            --             --
  Proceeds from initial public offering                                  17,615           (775)            --
  Proceeds from issuance of common stock, net                             9,157             --             --
  Preferred equity partners' contributions                                   --          1,613            141
  Due to National Auto Finance Corporation                                   --             --             (3)
                                                                      ---------      ---------      ---------
Net cash provided by financing activities                                48,298         11,672          2,371
                                                                      ---------      ---------      ---------
Net increase/decrease in cash and cash equivalents                       21,401          4,242           (766)
Cash and cash equivalents in beginning of period                          5,066            824          1,590
                                                                      ---------      ---------      ---------
Cash and cash equivalents at end of period                            $  26,467      $   5,066      $     824
                                                                      =========      =========      =========
SUPPLEMENTAL CASH FLOW INFORMATION:
  Cash paid for income taxes                                          $      --      $      --      $      --
                                                                      =========      =========      =========
  Cash paid for interest                                              $   1,656      $   1,253      $      --
                                                                      =========      =========      =========
</TABLE>


<PAGE>



                       NATIONAL AUTO FINANCE COMPANY, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                              1997       1996       1995
                                                                             ------     ------     ------
<S>                                                                          <C>        <C>        <C>
NON-CASH FINANCING ACTIVITIES:
  Offering costs deferred in 1996 transferred to paid-in capital in 1997     $  775     $    0     $    0
  Accrued mandatorily redeemable preferred stock dividends                       41          0          0
  Conversion of deferred interest on senior debt to Common Stock
   and paid-in capital                                                          169          0          0
  Conversion of predecessor entity capital to mandatorily redeemable
    preferred stock                                                           2,295          0          0
  Conversion of predecessor entity capital to common stock and paid-in
   Capital                                                                    7,225          0          0
  Deferred income taxes from reorganization considered
   reduction in paid-in capital                                               5,416          0          0
  Income earned in 1997 prior to reorganization included in
   paid-in capital                                                              526          0          0
  Issuance of 1,038,924 Warrants in conjunction with senior
   subordinated debt considered paid-in capital                               5,454          0          0
</TABLE>

See accompanying notes to the consolidated financial statements.





<PAGE>








             NATIONAL AUTO FINANCE COMPANY, INC. AND SUBSIDIARIES
                  Notes to Consolidated Financial Statements
                          December 31, 1997 and 1996


(1)  Organization and Summary of Significant Accounting Policies

     (a)  Organization and Business

          National  Auto Finance  Company,  Inc.  (the  "Company") is a consumer
          finance company specializing in the business of purchasing, financing,
          securitizing   and   servicing   Loans    originated    primarily   by
          manufacturer-franchised   Dealers   in  the   sale  of  new  and  used
          automobiles,  light duty trucks and  passenger  vans  ("automobiles").
          Through its Loan purchases, the Company provides indirect financing to
          Non-Prime  Consumers.  The Company serves as a source of financing for
          Dealers,  allowing them to sell automobiles to customers who otherwise
          might not be able to obtain financing from more  traditional  sources.
          The Company's headquarters is located in Boca Raton, Florida.

          National Auto Finance Company,  L.P., a Delaware  limited  partnership
          (the  "National Auto  Partnership")  was organized in October 1994 and
          conducted  the business of the Company until January 29, 1997. On that
          day, in connection  with the closing of the Company's  Initial  Public
          Offering (the "Offering"),  the assets and certain  liabilities of the
          National Auto  Partnership were transferred to the Company in exchange
          for all of the Common Stock then  outstanding and all of the preferred
          stock of the Company  then  outstanding  (the  "Reorganization").  The
          Company  then  issued  2,300,000  shares of stock to the public in the
          underwritten Initial Public Offering. The reorganization was accounted
          for in a manner  similar to a pooling of  interests  since the Company
          and National Auto Partnership were under common control at the time of
          reorganization.


     (b)  Summary of Significant Accounting Policies

     A description of the significant  accounting  policies that are followed by
the Company is presented below:

     (i)  Principles of Consolidation

          The consolidated  financial  statements  reflect the operations of the
          National  Auto  Partnership  and  subsidiaries  for 1995,  1996 and an
          approximate one-month period of January 1997 and National Auto Finance
          Company,  Inc. and  subsidiaries  for the eleven months ended December
          1997. All significant  inter-company  accounts and  transactions  have
          been eliminated in consolidation.


<PAGE>









     (ii) Cash and Cash Equivalents

          The Company  considers  money market funds and all other highly liquid
          debt  instruments  purchased  with an  original  maturity of less than
          three months to be cash equivalents.

     (iii) Furniture, Fixtures and Equipment

          Furniture,  fixtures and equipment are stated at cost less accumulated
          depreciation and  amortization.  Owned properties are depreciated on a
          straight-line basis over their useful lives.  Capital lease assets are
          amortized on a straight-line  basis over the lesser of their estimated
          useful lives or their lease terms.

     (iv) Securitization of Loans and Retained Interest in Securitizations

          Effective  January 1, 1997, the Company adopted  Financial  Accounting
          Standards  Board (FASB)  Statement of Financial  Accounting  Standards
          (SFAS) No. 125,  "Accounting  for Transfers and Servicing of Financial
          Assets and  Extinguishments of Liabilities" (SFAS No. 125). Under SFAS
          No. 125, an entity  recognizes only assets it controls and liabilities
          it has incurred,  discontinues recognition of assets only when control
          has been surrendered, and discontinues recognition of liabilities only
          when they have been extinguished.

          Loans that are purchased by the Company are sold on a daily basis in a
          two-step  securitization  program  as  described  in Note 3.  Gains or
          losses are  recognized  (1) upon transfer of Loans to the Master Trust
          (Note 3) based upon the amount of cash  received upon transfer of such
          Loans generally equal to the Company's  purchase price of the Loan and
          (2) an estimate of the Company's residual interest in the Master Trust
          (which constitute a portion of Retained Interest in  Securitizations).
          The value of the  Company's  residual  interest in the Master Trust is
          determined by estimating the fair value of amounts to be received from
          the Master Trust and the subsequent "Permanent  Securitizations" (Note
          3).

          The Retained  Interest in  Securitizations  is classified as a trading
          security for financial  reporting  purposes with changes in fair value
          either credited or charged to the statement of operations.

          The Company is aware of a limited market for the purchase or sale of
          its Over-Collateralization Accounts (a portion of its Retained
          Interest in Securitizations), but is not aware of an active market for
          the purchase or sale of the other components of its Retained Interest
          in Securitizations (ESRs and Cash Spread Accounts) and accordingly,
          the Company has determined the estimated fair value of the Retained
          Interest in Securitizations at December 31, 1997 by the following
          process:


<PAGE>








          1.   The Company  has estimated the timing and amount of cash flows to
               be received from Loans transferred to each  securitization  trust
               based upon  assumptions  relating to estimates of defaults,  loss
               severity,   prepayments   and  normal   principal   and  interest
               amortization (cash-in);

          2.   The Company has  calculated  the  timing  and amount of the total
               remaining principal and interest to be paid to the securitization
               investors given the  assumptions  noted above and the contractual
               requirements of each securitization;

          3.   The Company  has  estimated  the  total amount to be paid by each
               securitization trust for servicing, insurance and other costs and
               the timing of such payments;

          4.   The estimated  cash  payments described in (2) and (3) above have
               been  subtracted  from the  estimated  cash-in to  determine  the
               estimated Excess Spread Receivable (ESR) for each month.

          5.   The Company  has  estimated  the  required  Cash  Spread  Account
               balance  (Note 3) for each  securitization  trust for each period
               given  the  requirements  of each  trust  and the  impact  of the
               assumptions  noted above.  The Company then calculated the amount
               of  Excess  Spread  Receivable  to be added  to the  Cash  Spread
               Account or the amount of Cash  Spread  Account to be  released to
               the Company each month.

          6.   The  estimated  amount  of  cash  available  to  the  Company  as
               described  in  (5),  represents  the  Company's  estimate  of the
               "cash-out" of the securitization.

          7.   The fair value  of  cash-out  over  the  remaining  life  of  the
               securitization  has been  determined by discounting the estimated
               cash-out at a rate management  believed an investor would require
               for a stream of cash flows with similar risk characteristics.

          8.   The fair value of  cash-out  for each  securitization  trust  was
               compared to the  Retained  Interest in  Securitizations  for each
               securitization  trust.  Adjustments  to fair value or impairments
               are charged to securitization related income (loss).



<PAGE>








          Assumptions used to value the Retained Interests in Securitizations at
          December 31, 1997 were as follows:

          Weighted  average  cumulative  net  loss  rate    12.88%
          Weighted average cumulative  prepayment rate      20.89%
          Discount rate                                     14.00%
          Level of required Cash Spread Account             7%  to 11%
          Rate of interest on Cash Spread Account            5.50%
          Weighted average yield on Loans                   19.01%
          Weighted average yield on bonds and notes
            held by securitization investors                 6.15%
          Principal balance of Loans at
            December 31, 1997                        $226,846,000
          Principal balance of bonds and notes at
            December 31, 1997                        $217,113,000

     (v)  Deferred Financing Costs

          Costs incurred in connection  with certain  borrowings are capitalized
          and are being amortized on a straight-line  basis over the term of the
          debt.

     (vi) Stock-Based Compensation

          The Company  accounts for stock-based  compensation to employees using
          the  intrinsic   value  based  method  of  accounting   prescribed  by
          Accounting Principles Board ("APB") Opinion No. 25.

     (vii) Income Taxes

          Prior to January 29, 1997,  the Company's  operations  were  conducted
          through the  National  Auto  Partnership.  As such,  no  provision  or
          benefit for income taxes was  recorded  since the  responsibility  for
          income taxes passed  through to, and was  reportable by the individual
          partners.


<PAGE>









          Subsequent to the Reorganization, income taxes are accounted for under
          the asset and liability  method.  Deferred tax assets and  liabilities
          are  recognized  for  the  future  tax  consequences  attributable  to
          differences  between  the  financial  statement  carrying  amounts  of
          existing  assets and  liabilities  and their  respective tax bases and
          operating loss and tax credit  carryforwards.  Deferred tax assets and
          liabilities  are measured using enacted tax rates expected to apply to
          taxable income in the years in which those  temporary  differences are
          expected to be recovered or settled. The effect on deferred tax assets
          and  liabilities  of a change in tax rates is  recognized in income in
          the period that includes the enactment  date. A deferred tax valuation
          allowance  is  provided  to the extent that it is more likely than not
          that deferred tax assets will not be realized.

     (viii) Servicing

          Servicing fees are reported as income when earned.  Servicing expenses
          are  charged to  expense  as  incurred.  External  servicing  expenses
          include charges paid to third parties for servicing  related  charges.
          Internal   servicing  expense  include  costs,   including   salaries,
          associated with the Company's service center.

     (ix)  Use of Estimates

          In preparing the financial statements,  management is required to make
          estimates and assumptions  that affect the reported amounts of assets,
          liabilities,   revenue  and  expense.  The  most  significant  of  the
          estimates  relate to the  calculations  and  modeling  underlying  the
          valuation of the Retained Interest in Securitizations  and the related
          gain on sales  of  Loans.  Actual  results  could  differ  from  these
          estimates.

     (x) Reclassifications

          Certain  reclassifications  have been made to prior  year  amounts  to
          conform with the 1997 presentation.

(c)   New Accounting Pronouncements

     In June  1997,  the FASB  issued  SFAS No.  130,  "Reporting  Comprehensive
     Income"  ("SFAS No.  130").  SFAS No.  130 is  effective  for fiscal  years
     beginning after December 15, 1997.  SFAS No. 130 establishes  standards for
     reporting and display of comprehensive  income and its components in a full
     set of general  purpose  financial  statements.  SFAS No. 130 requires that
     all items to be  recognized  under  accounting  standards as  components of
     comprehensive  income be  reported  in a  financial  statement  with  equal
     prominence  as  other  financial  statements.   Such  information  will  be
     presented by the Company beginning with the quarter ended March 31, 1998.



<PAGE>








        
     In June 1997, the FASB issued SFAS No. 131,  "Disclosure  About Segments of
     an Enterprise and Related Information" ("SFAS No. 131"), which is effective
     for financial  statements for years beginning after December 15, 1997. SFAS
     No. 131 established  standards for the way that public business enterprises
     report information about operating segments,  based upon how the enterprise
     defines such segments.  The Company is required to report operating segment
     information,  to the extent such segments are defined,  beginning  with the
     year ended December 31, 1998.

     Adopting of the aforementioned accounting standards is not expect to have a
     material impact on the Company's financial position,  results of operations
     or liquidity.

(2)  Loss Per Common Share (EPS)

     Effective  December 31, 1997,  the Company  adopted  Statement of Financial
     Accounting  Standards  SFAS No. 128,  "Earnings per Share" ("SFAS No. 128")
     with previous  periods  restated.  SFAS No. 128  establishes  standards for
     computing  and  presenting  earnings per share,  simplifies  the  standards
     previously  found in APB No.  15,  "Earnings  Per  Share,"  and makes  them
     comparable to international EPS standards.

     Loss per common share for 1997 is calculated as follows:

                                                      Weighted Average
                                          -------------------------------------
                                           Income         Shares      Per Share
                                         (Numerator)   (Denominator)    Amount
                                          ---------     -----------   ---------
                                         (In thousands, except per share amount)

Loss before preferred stock dividends
 and ex$raordinary item                   $ (17,719)
Extraordinary item                             (720)
                                          ---------
Loss before extraordinary item            $ (18,439)       7,087        $(2.52)
                                               (148)       7,087         (0.10)
                                          ---------        -----        ------
Loss attributable to common
 stockholders                              $(18,587)       7,087        $(2.62)
                                          =========        =====        ======

     Inclusion of 379,000 options and 1,038,924 warrants outstanding at December
     31, 1997 would have an anti-dilutive


<PAGE>








     effect on the net loss for the year for  diluted  EPS,  thus,  such  common
     stock equivalents are excluded from the calculation.

     Pro Forma earnings per share for 1996 and 1995 are based upon the 4,230,000
     shares of  Common  Stock  acquired  by the  National  Auto  Partnership  in
     conjunction with the Reorganization.

(3)  Retained Interest in Securitizations

     Retained Interest in Securitizations  were as follows at December 31, 1997,
     1996 and 1995:

                                            December 31,
                                      -------------------------
                                       1997     1996      1995
                                      ------   ------    ------
                                       (dollars in thousands)

        Spread Accounts.............  $14,846  $8,221   $ 5,173
        Excess Spread Receivable....   16,723  15,183     5,140
                                      -------  ------   -------
                                      $31,569 $23,404   $10,313
                                      ======= =======   =======

     The Company  currently funds its purchases of Loans primarily through asset
     securitization program consisting of (i) the securitized warehousing of all
     of its Loans through  their daily sale  ("Revolving  Securitization")  to a
     bankruptcy-remote  master trust ("Master  Trust") pursuant to the Revolving
     Securitization, followed by (ii) the transfer of such warehoused Loans from
     time  to  time  by  the  Master  Trust  to  a  discrete  trust  ("Permanent
     Securitizations"), thereby creating additional availability of capital from
     the Master Trust.

     Specifically,  pursuant to the Revolving Securitization,  the Company sells
     Loans  that  it  has  purchased   from  Dealers  on  a  daily  basis  to  a
     special-purpose subsidiary,  which then sells the Loans to the Master Trust
     in exchange for cash and certain  residual  interests in future excess cash
     flows from the Master  Trust.  The Master  Trust,  to date,  has issued two
     classes  of  investor  certificates:  "Class  B  Certificates,"  which  are
     variable  funding  (i.e.,   revolving)  certificates  bearing  interest  at
     floating rates, and "Class C  Certificates,"  representing a portion of the
     residual  interest of the  Company's  special-purpose  subsidiary in future
     excess  cash flows from the Master  Trust  after  required  payments to the
     holders of the Class B certificates, deposits of funds to a restricted cash
     account as a reserve  for future  Loan  losses  which  provides  additional
     credit  enhancement for the holders of the Class B Certificates and payment
     of certain other expenses and obligations of the Master Trust.  First Union
     currently owns 100% of the outstanding Class B Certificates. (See Note 13 -
     Related Party  Transactions,  for a discussion of relationships  with First
     Union.)  Collectively,   the  restricted  cash  account  and  the  Class  C
     Certificate  portion of Loan  principal  (Over-Collateralization  Accounts)
     that  collateralize  the  Master  Trust are the  components  of the  Spread
     Accounts.  The Spread  Accounts and ESRs are reflected  collectively on the
     balance sheet as Retained Interest in Securitizations.


<PAGE>









     Periodically  the Master Trust transfers Loans and Spread Account  balances
     to Permanent  Securitizations  in exchange for cash, which is used to repay
     the Class B  Certificates.  Debt securities  representing  interests in the
     Permanent Securitizations are sold to Third-Party investors, who are repaid
     from cash  flows  from the Loan  receivables  in the  applicable  Permanent
     Securitization.  Excess Spread  Receivables  and return of Spread  Accounts
     attributable  to such Loans flow from the Permanent  Securitization  to the
     Company to the extent such funds are available.

     Under  the  financial  structures  the  Company  has  used  to  date in its
     securitizations,  certain  excess  cash  flows  generated  by the Loans are
     retained in the Spread Accounts within the securitization trusts to provide
     liquidity and credit enhancement. While the specific terms and mechanics of
     the Spread Accounts can vary depending on each  transaction,  the Company's
     agreements  with FSA,  the  financial  guaranty  insurer  that has provided
     credit  enhancements  in  connection  with the  Company's  securitizations,
     generally  provide  that the Company is not  entitled to receive any excess
     cash flows unless the level of certain Spread Account  balances,  comprised
     of cash and generally a 9% interest in the  principal  balance of the Loans
     in the trust (the  "Over-Collateralization  Accounts"),  have been attained
     and/or the delinquency or losses related to the Loans in the pool are below
     certain  predetermined  levels.  Additionally,  the  Company is required to
     maintain a minimum equity position in the Revolving Securitization of 10.0%
     of the net serviced  receivables.  This equity  currently  consists of cash
     invested by the Company  and  over-collateralization  in the form of Dealer
     Discount  related to the  principal  balance of Loans.  As of December  31,
     1997,  the  Company  had  a  10.01%  equity  investment  in  the  Revolving
     Securitization.

     In the  event  delinquencies  or losses on the  Loans  exceed  such  levels
     ("Trigger  Events"),  the  terms of the  securitization  may:  (i)  require
     increased Cash Spread Account balances to be accumulated for the particular
     pool;  (ii) restrict the  distribution  to the Company of excess cash flows
     associated  with the pool in which  asset-backed  securities are insured by
     FSA; and (iii) in certain circumstances,  require the transfer of servicing
     on some or all of the Loans in FSA-insured pools to another  servicer.  The
     imposition by FSA of any of these  conditions  could  materially  adversely
     affect the  Company's  liquidity  and  financial  condition by delaying the
     timing  of cash  flows  to the  Company,  thus  reducing  the  value of the
     Retained Interest in Securitizations.  Certain portfolio  performance tests
     were  not met at  various  times  in 1997  with  respect  to the  Permanent
     Securitization  trusts formed in November 1995 and November 1996, resulting
     in  additional  cash being  required to be retained in the Spread  Accounts
     related to such Permanent Securitization trusts until the violation of such
     performance tests are cured.

     Upon the occurrence of a Permanent Securitization failing to meet portfolio
     performance tests of the nature described above but at significantly higher
     levels (an Insurance  Agreement  Event of Default),  the Company will be in
     default  under  its  insurance  agreements  with  FSA.  Upon  an  Insurance
     Agreement Event of Default, FSA may: (i) permanently suspend  distributions
     of cash flow to the Company from the related  securitization  trust and all
     other FSA-insured  trusts until the asset-backed  securities have been paid
     in full;  (ii)  capture all excess cash flows from  performing  FSA-insured
     trusts;  (iii)  increase  its  premiums;  and (iv)  replace  the Company as
     servicer  with  respect  to all  FSA-insured  trusts.  In April  1997,  the
     Permanent  Securitization  trust  formed in November  1995  experienced  an
     Insurance  Agreement Event of Default. In October 1997, the Company entered
     into an  agreement  with FSA that:  (i)  permanently  waived the  Insurance
     Agreement Event of Default;  (ii) modified the portfolio  performance tests
     described  above to  increase  the  thresholds  through  June  1998 for the
     Permanent Securitization trusts formed in November 1995 and 1996 (temporary
     revisions);  (iii)  increased  the amount  required  to be  retained in the
     Spread  Account  related to the  November  1995 and 1996 trust to an amount
     generally  equal  to  11% of  the  then  outstanding  balance  held  by the
     securitization  trust if the modified  portfolio  performance tests are not
     met;  (iv)  required  the  Company  to cause the  Spread  Account  for each
     FSA-insured  securitization trust to be  cross-collateralized to the Spread
     Accounts  established  in  connection  with each of its  other  FSA-insured
     securitization  trusts;  (v)  permitted the Company to enter into the $10.0
     million  BankBoston  Agreement;  (vi)  provided  that  FSA  would  consider
     providing   credit   enhancement   for   the   Company's   next   Permanent
     Securitization;  and (vii)  provided for the issuance of 100,000  shares of
     Common Stock to FSA. In consideration for


<PAGE>








     such  agreement,  the Company  issued 100,000 shares of Common Stock to FSA
     and  reduced  gain  on  sale  by  $700,000  in  1997.  As a  result  of the
     aforementioned  cross-collateralization,   the  excess  cash  flow  from  a
     performing FSA-insured trust may be required to be used to support negative
     cash flow from,  or to replenish a deficient  Spread  Account in connection
     with, a non-performing  FSA-insured  securitization  trust, thereby further
     restricting excess cash flow available to the Company.  If excess cash flow
     from all FSA-insured  securitization  trusts is not sufficient to replenish
     all these Spread  Accounts,  no cash flow would be available to the Company
     for  that  month.  The  Company's  right  to  service  the  Loans  sold  in
     FSA-insured  securitizations is generally subject to the discretion of FSA.
     Accordingly,  there can be no assurance  that the Company will  continue as
     servicer for such Loans and receive related  servicing fees.  Additionally,
     there can be no  assurance  that  there  will not be  additional  Insurance
     Agreement  Events of  Default in the  future,  or that,  if such  events of
     default occur, waivers will be available. At February 28, 1998, the Company
     would have been in  violation  of  certain  Insurance  Agreement  Events of
     Default if the temporary  revisions had not been in effect.  If the Company
     does  not  meet  such  requirements  in  1998,  the  carrying  value of the
     Company's Retained Interest in Securitizations would be materially impacted
     in a negative manner.

     In addition,  any  increase in  limitations  on cash flow  available to the
     Company from Permanent  Securitization  trusts, the Company's  inability to
     obtain any  necessary  waivers  from FSA or the  termination  of  servicing
     arrangements  could  materially  adversely  affect the Company's  financial
     condition, results of operations and cash flows.

     At December  31, 1997,  the Company was in  violation of certain  covenants
     with respect to the Master Trust, including specifically, the covenant that
     the Master Trust  maintain  certain  interest rate hedging  agreements  and
     covenants  related to  allowable  repossession  and  recovery  limits.  The
     Company is in the process of seeking a waiver of such covenant breaches and
     modification  of certain  terms of the Master Trust to permit  availability
     under the Master Trust.

     During the years ended  December 31, 1997,  1996,  and 1995,  the following
     activity took place with respect to securitizations:

                                   December 31,   December 31,   December 31,
                                      1997           1996           1995
                                   -----------    -----------    -----------
                                           (dollars in thousands)

Principal balance of Loans sold...  $187,383        $84,981       $45,972
                                    ========        =======       =======

Weighted average coupon rate on
 Loans sold during the period.....    19.24%         18.88%        18.30%
                                     ======         ======        ======

(4) Senior Subordinated Debt

     In December 1997, the Company  completed a private placement (the "December
     Private Placement") of $10


<PAGE>








     million  in  Common  Stock  and $40  million  principal  amount  of  Senior
     Subordinated Notes with detachable Warrants. The December Private Placement
     of the $10 million in Common  Stock  resulted in the  issuance of 1,904,762
     shares in the aggregate of the  Company's  Common Stock at $5.25 per share.
     Additionally,  a representative  of each of two of the Senior  Subordinated
     Debt  lenders  who were also stock  purchasers  was elected to the Board of
     Directors.  The principal amount of the Senior Subordinated Notes is due in
     December  2004 and the Senior  Subordinated  Notes bear interest at 11.875%
     per annum for the  first  three  years,  12.875%  per annum for year  four,
     13.875% per annum for year five,  and 14.875%  per annum  thereafter,  with
     interest  payable  quarterly.  In  connection  with  the  December  Private
     Placement,  the Company  issued  detachable  Warrants with a ten-year life,
     exercisable  into Common Stock of the Company at $0.01 per share.  The fair
     value of such  Warrants  was  estimated  to be based upon a share  value of
     $5.25 for a total of $5.4 million. Such amount is recorded as a discount to
     the related debt and additional  paid-in  capital,  and is being  amortized
     over the life of the debt using the interest method. The effective interest
     rate, including the value of the warrants is approximately 15%.

     The  Company,  at  December  31,  1997,  was in  violation  of  the  Senior
     Subordinated  Notes' Minimum  Consolidated Net Worth and Adjusted  Interest
     Expense  covenants.  The Minimum  Consolidated Net Worth covenant  requires
     that the  Company  maintain  Consolidated  Net  Worth of not less  than (a)
     $25,890,000 plus (b) on a cumulative basis commencing with the first fiscal
     quarter  ending March 31, 1998,  50% of net income (if  positive)  for each
     fiscal  quarter plus (c) 100% of the net proceeds from any public  offering
     or  private  placement  of common  stock.  The  Adjusted  Interest  Expense
     covenant  requires  generally  that the sum of the Company's Net Income (as
     defined)  Consolidated  Total Interest  Expense (as defined) and income and
     franchise  taxes divided by its  Consolidated  Total  Interest  Expense (as
     defined) for each period of four fiscal  quarters  ending December 31, 1997
     and thereafter be at least 1.4:1. In addition, the Company is default under
     the corresponding covenants contained in the March 1998 Securities Purchase
     Agreement.  The Company is in the process of seeking  waivers of the breach
     of such  covenants.  If such waivers are not  obtained,  the holders of the
     indebtedness  represented  thereby may declare a default and accelerate the
     payment of the principal amount of such indebtedness.


     In December  1997,  in  connection  with the  consummation  of the December
     Private Placement (as described above),  the Company repaid the $12 million
     senior subordinated notes held by J.P. Morgan Investment  Management,  Inc.
     on behalf of certain institutional investors (the "Morgan Notes"). Interest
     expensed on the Morgan Notes for the year ended  December 31, 1997 and 1996
     was  $1.2  million  and  $581,000,  respectively.  In  connection  with the
     repayment of such debt in 1997, the Company recorded an extraordinary  item
     for the write-off of related deferred financing costs of $720,000. Prior to
     the Company's  Initial  Public  Offering  (Offering) in January,  1997, the
     Morgan Notes had a 3% deferred  interest coupon that accrued  interest on a
     compounded  basis and was payable in August,  2006,  but was converted into
     496,000  shares of common  stock upon  consummation  of the Initial  Public
     Offering.  Accrued  interest  at that date was  $169,000.  Such  amount was
     recorded as common stock and additional paid-in capital.


<PAGE>






    Notes Payable

    Notes payable at December 31, are as follows:

                                                       1997           1996
                                                      ------         ------
                                                          (In thousands)

    Revolving $1.5 million line of credit with First
      Union dated August 25, 1997;  matures March,
      2001;  interest  payable  monthly at LIBOR +
      2.5% (8.47% at December 31, 1997); total
      interest expense during 1997 was $18,000         $1,018           --

    Capital lease for equipment dated August 20,
     1997; matures November 2001; interest at 7.05%       279           --

    Revolving $10.0 million revolving credit facility
     with BankBoston for purchase of Loans, matures
     September 2000; interest payable monthly at
     the greater of the prime rate of the federal
     funds rate plus .50% (8.5% at December 31, 1997);
     total interest expense during 1997 was $96,000       254           --

    Other                                                  63           96
                                                       ------       ------
                                                       $1,614       $   96
                                                       ======       ======

     At  December  31,  1997,  the Company was in  violation  of the  BankBoston
     Agreement's  Minimum Quarterly Net Income and Minimum Debt Service Coverage
     Covenants.  The  Company  cannot continue to borrow in the future under the
     BankBoston Agreement unless such covenant breaches are waived.

(5) Description of Capital Stock

     The authorized  capital stock of the Company consists of 20,000,000  shares
     of Common Stock and 1,000,000  shares of preferred  stock,  par value $0.01
     per share, issuable in series (the "Preferred Stock").



<PAGE>






    Common Stock

     The holders of Common Stock will be entitled to receive  dividends when and
     as  dividends  are declared by the Board of Directors of the Company out of
     funds  legally  available  therefor,  provided  that if any  shares  of the
     Preferred  Stock are  outstanding  at the time, the payment of dividends on
     the Common Stock or other  distributions  may be subject to the declaration
     and payment of full cumulative dividends on outstanding shares of Preferred
     Stock.  Holders of Common  Stock are  entitled to one vote per share on all
     matters to be voted upon by the  stockholders.  The holders of Common Stock
     are not entitled to preemptive, conversion or subscription rights.

     In the event of liquidation,  dissolution or winding-up of the Company, the
     holders  of Common  Stock  are  entitled  to share  ratably  in all  assets
     remaining  after  payment of  liabilities,  subject  to prior  distribution
     rights of the Preferred Stock, if any, outstanding.

    Preferred Stock

     The  Board  of  Directors  is   authorized,   without  any  action  of  the
     stockholders,  to  provide  for  the  issuance  of one or  more  series  of
     Preferred  Stock  and to  fix  the  designation,  preferences,  powers  and
     relative,   participating,   optional  and  other  rights,  qualifications,
     limitations and restrictions  thereof including,  without  limitation,  the
     dividend  rate,  voting rights,  conversion  rights,  redemption  price and
     liquidation  preference  per  series  of  Preferred  Stock.  Any  series of
     Preferred  Stock so issued may rank senior to the Common Stock with respect
     to the payment of dividends or amounts to be distributed upon  liquidation,
     dissolution  or winding  up.  The  existence  of  authorized  but  unissued
     Preferred  Stock may enable the Board of Directors to render more difficult
     or to discourage an attempt to obtain  control of the company by means of a
     merger,  tender offer, proxy contest or otherwise.  For example,  if in the
     due exercise of its fiduciary  obligations,  the Board of Directors were to
     determine that a takeover  proposal is not in the Company's best interests,
     the Board of Directors  could cause shares of Preferred  Stock to be issued
     without  stockholder  approval in one or more  private  offerings  or other
     transactions  that might  dilute the voting or other rights of the proposed
     acquirer or insurgent  stockholder  or stockholder  group.  The issuance of
     shares of Preferred  Stock  pursuant to the Board of  Directors'  authority
     described above could decrease the amount of earnings and assets  available
     for distribution to holders of Common Stock and adversely affect the rights
     and  powers,  including  voting  rights,  of such  holders and may have the
     effect of  delaying,  deferring  or  preventing  a change in control of the
     Company.

     The Board of Directors  has adopted a  Certificate  of  Designation  of the
     Mandatorily  Redeemable  Preferred Stock, Series A (the "Series A Preferred
     Stock").  The terms of 2,295 outstanding shares of Series A Preferred Stock
     are 7% cumulative  dividend,  payable  quarterly;  callable at stated value
     plus accrued  dividends at the option of the  Company;  non-voting,  except
     under certain  circumstances;  and mandatory  redemption at stated value in
     January  2005.  The  Company  has  accrued  approximately  $41,000 and paid
     $107,000 in preferred stock dividends as of December 31, 1997.

<PAGE>

(6) Other Operating Expenses

     Other operating expenses consisted of the following:


                                           For the Year Ended December 31,
                                       -----------------------------------------
                                        1997            1996              1995
                                       ------          -------           -------
                                                   (in thousands)
       Professional fees............   $1,037          $   181           $   151
       Rent expenses................      367              215                94
       Travel and entertainment.....      387               68               260
       Management fees..............      540              480               342
       Other........................    1,271              811               403
                                       ------          -------           -------
          Total.....................   $3,602          $ 1,755           $ 1,250
                                       ======          =======           =======

     Management  fees  represent fees paid to National  Financial  Companies LLC
     ("National  Financial") for operational,  legal,  administrative  and other
     services  provided to the Company and its  predecessors  under a management
     agreement that expires on December 21, 2015. (See note 13.)

(7) Commitments and Contingencies

     Future minimum rental payments under various office and equipment leases as
     of December 31, 1997 are as follows:

    Year Ending                        Operating     Capital
    December 31,                         Leases      Leases      Total
    ------------                       ---------     -------    -------
                                                   (in thousands)

       1998.........................   $  913      $    83      $   996
       1999.........................      893           90          983
       2000.........................      887           95          982
       2001.........................      806           72          878
       2002.........................      738           --          738
       Thereafter...................      461           --          461
                                       ------      -------      -------
          Total lease commitment....   $4,698      $   340      $ 5,038
                                       ======      =======      =======



<PAGE>








     Capital leases are included as a component of notes  payable.  Rent expense
     was $367,000, $214,000 and $94,000 in 1997, 1996 and 1995, respectively.

(8) Income Taxes

     The Company  had no current  income tax  provision  in 1997 due to its loss
     incurred for tax purposes.

     Pro Forma  adjustments  for income taxes  represent the difference  between
     historical  income taxes and income taxes that would have been reported had
     the Partnerships  filed income tax returns as taxable "C" corporations 1996
     and 1995.

                                             For the Year Ended December 31,
                                             -------------------------------
                                                  1996          1995
                                             -------------  ----------------
                                                    (in thousands)
       Pro forma income tax adjustments
       (unaudited):
          Federal...................            $1,527         $   963
          State and local...........               162             103
                                                ------         -------
                                                 1,689           1,066

     The tax  effects of  temporary  differences  that give rise to  significant
     portions of the deferred tax assets and tax  liabilities as of December 31,
     1997 were:

    Deferred tax assets (in thousands):

    Securitized assets sold for financial statement
       Purposes, financed for income tax purposes      $   43
    Net operating loss carryforward                     1,543
                                                       ------
    Total gross deferred tax assets                     1,586
    Less valuation allowance                           (1,457)
                                                       ------
    Total deferred tax assets                             129
                                                       ------


<PAGE>









    Deferred tax liabilities:
    Other                                                 129
                                                       ------
    Net deferred tax asset                             $   --
                                                       ======

     As of December 31, 1997,  the Company had a $4.1 million net operating loss
     for income tax purposes, which will expire in 2012.

     The actual  provision  for income taxes for 1997 and pro forma income taxes
     for 1996 and 1995  differ from the  amounts  computed  by applying  federal
     statutory  rates to income before income taxes and  extraordinary  item due
     to:

                                              For the Year Ended December 31,
                                           -------------------------------------
                                             1997         1996            1995
                                           --------     --------        --------
                                                     (in thousands)
       Provision benefit computed at
         Federal statutory rate of 34%....  $(6,269)    $ 1,527         $ 1,115
       State income taxes, net of federal
         tax benefit......................     (669)        162             119
       Change in deferred tax asset valuation
         allowance........................    1,457           -            (178)
       Deferred income liability recorded in
          conjunction with the
          reorganization..................    5,416
       Other..............................       65           -              10
                                             ------     -------         -------
                                             $    -     $ 1,689         $ 1,066
                                             ======     =======         =======


(9) Employee Benefit Plans

     The Company  adopted a 401(k)  profit  sharing plan (the "Plan") in August,
     1996 that is intended to be a tax-qualified  defined-contribution plan. All
     employees of the Company, other than employees who work less than


<PAGE>








     1,000 hours per year,  are  eligible to  participate  in the Plan once they
     have completed six months of continuous service.

     A  participating   employee  may  contribute  up  to  15%  of  his  or  her
     compensation, with a current maximum contribution of $10,000 to the Plan on
     a pretax  basis.  The  Company  may make a  matching  contribution  to each
     employee's account based on the amount of pretax  contributions made by the
     employee.

     Currently,  the  Company  is  allocating  a  50%  match  of  the  first  6%
     contributed by the employee,  subject to certain legal limitations  imposed
     on  tax-qualified  plans.  Matching  contributions  by the Company are made
     regardless of profits and are allocated only to qualified participants on a
     monthly  basis.  Compensation  expense  related to the Plan was $75,000 and
     $21,000 in 1997 and 1996, respectively.

     Contributions to the Plan are invested in a variety of funds as directed by
     the Plan  participants.  All pretax employee  contributions to the Plan are
     100% vested and matching contributions by the Company are vested at 20% per
     annum over a five-year  period from the date the employee  joined the Plan.
     All active employees that had completed 1,000 hours of service as of August
     30,  1996  were  invited  to join the  Plan and have  matching-contribution
     vested rights predated to their date of employment.

     Generally,  employees  may not  receive  distributions  from the Plan until
     their retirement,  death,  certain disability or termination of employment.
     Loans  are  prohibited  by the Plan,  although  distributions  for  certain
     hardship   purposes  are  allowed  in  accordance   with  tax   regulations
     promulgated  under the Internal  Revenue Code. All  distributions  from the
     Plan are made in the form of a single lump-sum distribution.

(10) Stock Option Plan

     In 1996,  the Board of Directors of the Company  adopted a share  incentive
     plan (the "1996  Share  Incentive  Plan").  The 1996 Share  Incentive  Plan
     provides for the granting of certain  benefits in any one or a  combination
     of (i) stock options,  (ii) stock appreciation  rights, (iii) stock awards,
     (iv) performance awards and (v) stock units. The aggregate number of shares
     of Common  Stock  that may be  subject to such  benefits,  including  stock
     options,  is 500,000  shares of Common Stock  (subject to adjustment in the
     event of a merger, consolidation,  reorganization,  recapitalization, stock
     dividend, stock split, reverse stock split, split up, spin-off, combination
     of shares,  exchange  of shares,  dividend  in-kind or other like change in
     capital structure or distribution).

     Through the end of 1997,  stock  options  with  respect to an  aggregate of
     379,000 shares of Common Stock were granted under the 1996 Share  Incentive
     Plan to fifteen key employees  and five  directors at the fair market value
     at the date of grant and  subsequently  reduced in December,  1997 to $5.25
     per share (which exceeded the market price of the stock at that date).  All
     employee  stock options vest one-third  immediately,  one-third in 1998 and
     one-third in 1999,  and  director  stock  options  vest in 1998.  All stock
     options expire 10 years from the date of grant.

<PAGE>
     A summary of stock option activity under the Plan is as follows:

   
                                               Shares    Price Per Share
                                               ------    ---------------
    Balance, December 31, 1996......                0      --       --
        Granted.....................          421,000   $ 3.25 to $ 5.25
        Exercised...................                0      --       --
        Cancelled...................          (42,000)  $ 5.25 to $ 5.25
                                             --------
    Balance, December 31, 1997......          379,000
                                             ========

     The Company accounts for stock-based compensation plans under the intrinsic
     value method.  The following  presents,  on a pro forma basis, net loss and
     net loss per common  share  assuming  the Company  utilized  the fair value
     method of SFAS 123. The fair value of the options was  estimated at date of
     grant  using a  Black-Scholes  option  pricing  model  with  the  following
     assumptions  for 1997:  weighted-average  risk-free  interest rate of 5.0%,
     volatility  factor of the  expected  market price of the  Company's  Common
     Stock of  64.37,  and  expected  option  lives  of ten  years.  Fair  value
     calculations  assume  no  dividends  will be paid on the  Company's  Common
     Stock.

     (Dollars in thousands, except per share data)

                                                     Basic           Diluted

     Pro forma net loss..............     $(19,029)
     Pro forma net loss per common share:
        Before extraordinary gain...                $(2.58)          $(2.58)
        Extraordinary item..........                 (0.10)           (0.10)
                                                    ------           ------
        Net loss....................                $(2.68)          $(2.68)
                                                    ======           ======

     The weighted  average fair value of options  granted during 1997 was $1.95.
     The employee turnover factor for 1997 was none.

(11) Fair Value of Financial Instruments

     The following  methods and assumptions were used to estimate the fair value
     of each class of financial instruments:

     -    The carrying  amounts of cash and cash  equivalents  have  approximate
          fair value because of the short maturity of these instruments.



<PAGE>








     -    Retained interests in securitizations are stated at fair value.

     -    The fair value of Junior  Subordinated Notes determined at the present
          value of expected future cash flows discounted an approximate interest
          rate for such borrowing based on a spread above actual yield on senior
          debt  was  $1,450  and  $5,388  at   December   31,   1997  and  1996,
          respectively.  The book  value of such debt was  $1,940  and $7,122 at
          December 31, 1997 and 1996, respectively.

     -    The fair  value of Senior  Subordinated  Notes and  notes  payable  is
          determined  as  the  present  value  of  expected  future  cash  flows
          discounted  at the  interest  rate  currently  offered to the Company,
          which  approximates rates currently offered for Loans of similar terms
          to  companies  with  comparable   credit  risk.  The  carrying  amount
          approximates fair value.

(12) Related Party Transactions

    National Financial Companies LLC (National Financial or NFC)

     The  Company is party to a  management  agreement  and a service  agreement
     pursuant to which NFC provides operational,  financial,  legal, accounting,
     management,  advisory  and other  administrative  services  relating to the
     management,  business operations,  assets and interests of the Company. The
     Company pays a fixed fee of $540,000 per year,  plus other fees,  costs and
     expenses,  to National  Financial for such services.  The Company  believes
     that the terms of the management agreement and the service agreement are as
     favorable as could have been obtained from an unaffiliated  Third-Party for
     comparable  services.  The Company,  with board approval,  may from time to
     time  request that  National  Financial  augment the  services  provided by
     National  Financial,  or its  successors or assigns,  under the  management
     agreement  and service  agreement  to the  Company  and,  accordingly,  the
     Company would pay additional fees for those services. The terms of any such
     agreement would be, however, on terms the Company considers as favorable as
     could have been obtained from an  unaffiliated  Third-Party  for comparable
     services. Amounts paid to NFC were $884,000, $603,000 and $460,000 in 1997,
     1996 and 1995,  respectively;  $333,000  of the amount paid in 1997 was for
     services as described below. Gary L. Shapiro,  Chairman and Chief Executive
     Officer of the Company is the  Chairman and Chief  Executive  Officer and a
     principal owner of National Financial and National Auto Finance Corporation
     ("National  Auto"),  the general partner of the National Auto  Partnership.
     Keith B. Stein, Vice Chairman,  Treasurer and a director of the Company, is
     a managing  director of National  Financial,  and an  executive  officer of
     National Auto.

     During 1997, NFC provided  various services related to the December Private
     Placement. NFC received $333,000 in fees and reimbursements related to such
     services, which was treated as a cost of the offerings.

    Junior Subordinated Notes

     The Junior  Subordinated Notes are payable to certain affiliates on January
     31,  2002,  and accrue  interest at eight  percent per annum.  Such debt is
     subordinated to all other debt of the Company.


<PAGE>








     Interest expense recognized for this debt for the years ending December 31,
     1997, 1996 and 1995 was $201,000, $580,000 and $482,000 respectively.

    Senior Subordinated Debt

     As  discussed  in  Note 4, in  conjunction  with  the  issuance  of  Senior
     Subordinated Debt and Common Stock in December,  1997,  representatives  of
     each of the stock purchasers,  who were also lenders of Senior Subordinated
     Debt, were elected to the Board of Directors.

    Pro -Travel and InfoTech

     The Company uses the services of Pro-Travel, Inc. ("Pro-Travel"),  a travel
     agency, for its travel needs.  Pro-Travel is a privately-held  corporation,
     98% owned by Mr.  Shapiro and his wife.  All fees charged by Pro-Travel are
     at rates  comparable to those charged by unrelated  third-party  providers.
     The Company intends to continue using Pro-Travel for its travel needs.

     Further,  in 1997, the Company used the services of InfoTech  Professionals
     of South Florida,  Inc.  ("InfoTech"),  an employment placement agency, for
     the retention of certain of the Company's MIS  personnel.  Mr. Shapiro is a
     majority  stockholder of InfoTech, a privately-held  corporation.  In 1997,
     the Company paid InfoTech  approximately  $31,200 in placement agency fees.
     The  Company  believes  that the fees  charged  by  InfoTech  were at rates
     comparable to those charged by unrelated third-party providers.

    First Union National Bank of North Carolina (First Union)

     The Company has entered into an  agreement  with First Union and certain of
     its affiliates (the "First Union Strategic  Alliance")  whereby First Union
     receives a fee from the Company for each referral of sub-prime borrowers to
     the Company  that  results in purchase of a Loan.  Fees paid to First Union
     under this arrangement were approximately $400,000,  $137,000 and $6,000 in
     1997, 1996 and 1995, respectively.

     The Company's  referral  agreement  with First Union has a three-year  term
     that  currently  terminates in April 2000.  Subject to the consent of First
     Union,  the referral  agreement may be renewed in April of each year for an
     additional  year, such that,  after its renewal,  the remaining term of the
     referral agreement continues to be three years. The Company and First Union
     have agreed to allow First Union up to and including May 15, 1998 to notify
     the  Company  of First  Union's  renewal  or  non-renewal  of the  referral
     agreement  for an  additional  year.  Further,  First  Union may,  however,
     terminate the referral  agreement  upon,  among other things,  a "change of
     control" of the Company as defined in the referral agreement.  In the event
     the referral  agreement is terminated,  the Company may, however,  continue
     the relationships it has established with First  Union-related  Dealers. In
     addition,  the referral  agreement  precludes  the Company from  purchasing
     Loans from First Union-related Dealers through other Strategic Alliances in
     the same  geographic  areas as those  covered by the First Union  Strategic
     Alliance.  If the First Union  Strategic  Alliance is  terminated or if the
     Company is unable to form additional  significant Strategic Alliances,  the
     Company's


<PAGE>








     financial condition, results of operations and cash flows may be materially
     adversely affected. For the year ended December 31, 1997, approximately 43%
     of the Loans the Company  purchased  were  attributable  to the First Union
     Strategic Alliance.

     As part of the First  Union  Alliance,  an  affiliate  of First  Union (the
     "First Union Partner") has acquired an indirect equity stake in the Company
     through the Company's primary  stockholder,  National Auto Finance Company,
     L.P. To facilitate the First Union  Partner's  compliance  with  applicable
     banking laws,  regulations and orders  (collectively,  the "Banking Laws"),
     the Company has agreed that it will engage  solely in  activities  that are
     permissible for national banks as determined by Banking Laws in effect from
     time to time. For example,  the Company is subject to the  supervision  and
     examination  of the Office of the  Comptroller of the Currency (the "OCC"),
     one of the principal regulatory bodies having jurisdiction over First Union
     and the First Union Partner. The OCC has reviewed the First Union Strategic
     Alliance and the terms thereof, and the OCC's written approval was required
     in order for the First Union Strategic  Alliance to be consummated.  If the
     First Union Partner determines that any proposed  activities of the Company
     are  impermissible  for national  banks,  such  affiliate  has the right to
     prevent the Company from engaging in such  activities.  Management does not
     believe,  however,  that the  Banking  Laws will impact  significantly  the
     manner in which the  Company  intends to conduct or expand its  business or
     product and service  offerings  although there can be no assurance that the
     banking laws will not have such an effect.

     First Union has also served as underwriting  and placement agent related to
     the  Company's   securitizations.   Underwriting   fees  paid  and  expense
     reimbursements  related to  securitizations  were  approximately  $425,000,
     $392,000 and $382,000 in 1997, 1996 and 1995, respectively.

     First Union also owns 100% of the Class B or Senior Certificates related to
     the Master Trust. Such investment  aggregated $96.0 million at December 31,
     1997.

     First  Union  acted as  placement  agent  related to the  December  Private
     Placement for which First Union received fees and expense reimbursements of
     $1.7 million.

     First  Union  received  a fee  of  $25,000  in  1997  in  conjunction  with
     negotiation  of  amendments  to the  Company's  Master  Trust  Agreement at
     December 31,  1997.  As described in Note 5, the Company has a note payable
     to First Union with an  outstanding  balance of $1.0 million as of December
     31, 1997 related to equipment financing.

(13)  Subsequent Events

     In  January  1998,  the  Company   completed  a  $93.6  million   Permanent
     Securitization of its Loans. In connection with the  securitization,  $85.2
     million of notes rated AAA by S&P and Aaa by Moody's were issued.

     In March, the Company  completed the March Private Placement of $20 million
     principal amount of Senior Subordinated Notes with detachable warrants with
     the  SFHY  Fund,  an  investment  fund  sponsored  by The  Prudential  Life
     Insurance  Company of America.  Those  Notes,  which mature in seven years,
     bear interest at


<PAGE>








     11.875% per annum for the first three years,  12.875% in year four, 13.875%
     in year five,  and 14.875% in years six and seven.  In connection  with the
     placement of those notes,  the Company issued 593,761  detachable  Warrants
     with a ten-year  maturity,  exercisable into Common Stock of the Company at
     $0.01 per share.

     In March 1998, the Company  entered into the U.S. Bank Strategic  Alliance.
     As part of that Strategic  Alliance,  the Company will serve as a non-prime
     automobile  financing  source for U.S. Bank's extensive  automobile  dealer
     network. U.S. Bank is currently the fifteenth largest financial institution
     in the  United  States  and has a dealer  network  of  approximately  2,500
     dealers in 20 Western and Mid-Western states.

(14)  Liquidity and Going Concern

     In 1997,  the Company  suffered  losses  from  operations,  experienced  an
     Insurance  Agreement Event of Default with respect to its  securitizations,
     and was in violation of various covenants  related to its borrowings.  Such
     matters raise a substantial  doubt about the Company's  ability to continue
     as a going concern.

     These consolidated financial statements do not include any adjustments that
     might result from the outcome of this uncertainty.




<PAGE>













Item  9.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
          Financial Disclosure.

       Not Applicable.

                                    PART III

Item 10.  Directors and Executive Officers

    Certain  information  concerning the executive officers and directors of the
Company as of April 24, 1998 is set forth below:

Name                 Age   Position with the Company
----                 ---   -------------------------

Gary L. Shapiro...   48    Chairman of the Board and Chief Executive Officer
Keith B. Stein....   40    Vice Chairman, Chief Financial Officer, Treasurer
                             and Director
Roy E. Tipton.....   44    President and Director
William G. Magro..   48    Executive Vice President, Chief Operating Officer and
                             President of the Financial Services Division
Timothy W. Carter.   47    Senior Vice President, Portfolio Acquisitions
Kevin G. Adams....   41    Senior Vice President, Finance
Stephen L. Topp...   49    Vice President, Loan Originations
Joel B. Ronkin....   30    Vice President, Secretary and General Counsel
Melissa J. Grimm..   37    Vice President and Controller
Brent E. Wombolt..   39    Vice President, Financial Services Division
James E. Shuler...   37    Vice President, Collections
Joseph P. Donlan..   51    Director
Stephen L. Gurba..   41    Director


<PAGE>








Peter Offermann...   53    Director
Morgan M. Schuessler 62    Director
David W. Young....   55    Director

     Gary L. Shapiro has been the Chairman of the Board and the Chief  Executive
Officer of the Company since its founding in October 1994.  Mr.  Shapiro is also
Chairman of the Compensation Committee of the Board of Directors of the Company.
Mr. Shapiro has also been the Chairman and Chief  Executive  Officer of National
Financial and its predecessor for more than five years.  Mr. Shapiro served as a
partner  in the firm of  Mailman,  Ross,  Toyes and  Shapiro,  Certified  Public
Accountants,  from  November 1973 to March 1982. In 1981,  Mr.  Shapiro  founded
National  Machine Tool Finance  Corporation  ("National  Tool"),  a machine tool
finance company. He served as President of National Tool until 1990.

     Keith B. Stein has been the Chief  Financial  Officer of the Company  since
February 19, 1998, Vice Chairman,  Treasurer and a Director of the Company since
January  1997,  and was  Secretary of the Company from October 1994 to June 1997
and Executive  Vice  President of the Company from October 1994 to January 1997.
Mr. Stein has been a Managing Director of National Financial since January 1995.
Mr.  Stein served from March 1993 to  September  1994 as Senior Vice  President,
Secretary  and General  Counsel of WestPoint  Stevens  Inc., a textile  company,
after having  served the same company from October 1992 to February  1993 in the
capacity  of Acting  General  Counsel and  Secretary.  From May 1989 to February
1993, Mr. Stein was associated with the law firm of Weil,  Gotshal & Manges LLP.
Mr. Stein has served as a director of DVL, Inc., a public company engaged in the
real estate finance business, since September 1996.

     Roy E. Tipton has been the  President of the Company since October 1994 and
a Director of the Company since January 1997.  Mr. Tipton served from April 1992
to May 1994 as the  President  of  Stanford  Automotive  Financial  Company,  an
automobile finance company. Mr. Tipton served from April 1991 to April 1992 as a
Regional  Manager of Primus Auto Company,  an automobile  finance  company.  Mr.
Tipton served in several  capacities  at each of Ford Motor Credit  Company from
June 1975 to  September  1986 and at Omni  Financial  Services of America,  Inc.
("OFSA") from September 1986 to April 1991.

     William G. Magro has been the Chief Operating  Officer of the Company since
January  1998,  Executive  Vice  President of the Company since October 1994 and
President of the  Financial  Services  Division of the Company  since  September
1997.  Mr.  Magro  served  from  January  1985 to August  1994 as a Director  of
Collection  and Client  Services for OFSA. Mr. Magro served from January 1972 to
December 1984 as a Collection  Supervisor and a Dealer  Relations  Supervisor at
General Motors Acceptance Corp.

     Timothy  W.   Carter  has  been  the  Senior  Vice   President,   Portfolio
Acquisitions  of the  Company  since  January  1998,  Senior Vice  President  --
Planning  and  Development  of the  Company  from June 1997 to January  1998 and
served as Vice  President--Planning  and Development  from February 1996 to June
1997.  Mr.  Carter  served  from July 1991 to February  1996 as the  Director of
Development of OFSA. Mr. Carter held various positions with OFSA from March 1988
to July 1991.

     Kevin G. Adams has been the Senior Vice  President,  Finance since February
1998 and was Vice  President  and Chief  Financial  Officer of the Company  from
October 1994 through  January  1998.  Mr.  Adams  served from  December  1992 to
October 1994 as Vice President--Finance of National Financial.  Mr. Adams served
from September 1983 to June 1992 as Vice President and Chief  Financial  Officer
of National Tool.


<PAGE>








     Stephen  L.  Topp has been the Vice  President,  Loan  Originations  of the
Company  since January 1998 and Vice  President--Operations  of the Company from
April  1997  to  January   1998.   Mr.  Topp  served  as  the   Assistant   Vice
President--Sales  Finance in the  automobile  finance  division  of First  Union
National Bank of Tennessee from January 1994 to March 1997. Mr. Topp served from
January 1990 to July 1993 as Senior Financial  Services Manager of Nissan Motors
Acceptance  Corporation,  an automobile  finance company.  Mr. Topp held various
positions with OFSA from 1987 through 1989.

     Joel B. Ronkin has been the Vice  President,  Secretary and General Counsel
of the Company  since June 1997.  From August 1992 to June 1997,  Mr. Ronkin was
associated with the law firm of Steel Hector & Davis LLP. In that capacity,  Mr.
Ronkin's  practice   primarily  focused  on  the  representation  of  automotive
companies.

     Melissa J. Grimm has been the Vice  President and Controller of the Company
since February 1998 and Controller since December 1996. Ms. Grimm served as Vice
President and Assistant  Controller with Citizens Federal Bank from October 1986
to July 1996.

     Brent E. Wombolt has been the Vice President,  Financial  Services Division
of the Company  since  February  1998 and  Assistant  Vice  President,  Customer
Service of the Company from May 1997 to January 1998.  Mr.  Wombolt held various
positions with First Merchants  Acceptance  Corporation  from March 1995 through
July 1996.  Mr.  Wombolt held various  positions  with OFSA from  December  1984
through February 1995.

     James E.  Shuler has been the Vice  President,  Collections  of the Company
since  February 1998 and from May 1996 to February  1998 held various  positions
with the Company.  Mr.  Shuler was employed by TranSouth  Financial  Service,  a
consumer finance company,  from September 1994 to February 1998. Mr. Shuler held
various positions with OFSA from August 1988 to September 1994.

     Joseph P. Donlan has been a Director of the Company  since  December  1997.
Mr.  Donlan has held a number of positions  with Brown  Brothers  Harriman & Co.
("Brown Brothers") since 1970, and is currently co-manager of The 1818 Mezzanine
Fund L.P., a $250 million  private equity fund.  Prior to his current  position,
Mr.  Donlan  was the  Manager  of  Brown  Brothers'  USBanking  Department  with
responsibility  for managing five banking groups engaged in international  trade
finance,  domestic  commercial  finance,  financial advisory service and private
placement activities.

     Stephen L. Gurba has been a Director  of the Company  since June 1997.  Mr.
Gurba has been a managing  director  and partner of National  Financial  for the
past five years. Since January 1995, Mr. Gurba has served as President and Chief
Executive  Officer of National Defense Company L.L.C and its subsidiary,  Bulova
Technologies  L.L.C.  ("Bulova"),  which  manufacture  precision  components for
military and commercial  applications.  Since September 1992, Mr. Gurba has also
served as the Chief Executive Officer of Environmental Systems & Services, Inc.,
which is now a division of Bulova. From January 1993 to December 1994, Mr. Gurba
served as  President  and Chief  Executive  Officer  of  National  Manufacturing
Corporation, a manufacturer of ammunition for defense applications.

     Peter  Offermann  has been a Director of the Company since January 1997 and
is Chairman of the Audit Committee and a member of the Compensation Committee of
the Board of Directors of the Company.  Since  January 1995,  Mr.  Offermann has
served as Executive Vice President and Chief  Financial  Officer of TLC Beatrice
International Holdings, Inc.,


<PAGE>








a food  manufacturing and distribution  business.  Since May 1994, Mr. Offermann
has been  President  of  Offermann  Financial  Inc.,  a  provider  of  strategic
financial  advice.  From  1968 to April  1994,  Mr.  Offermann  held a number of
positions  with Bankers  Trust  Company and its  affiliates,  including  Manager
Director of BT Investment Partners, Inc. from October 1992 to May 1994, Managing
Director of BT  Securities  Corporation  from  October  1991 to October 1992 and
Managing  Director of Bankers  Trust  Company from 1986 to October  1991.  Since
April 1996, Mr. Offermann has served as a Director of Jan Bell Marketing,  Inc.,
a jewelry distribution company.

     Morgan M.  Schuessler  has been a Director of the Company  since April 1997
and is a member of the Audit  Committee  and the  Compensation  Committee of the
Board of Directors of the Company.  Mr.  Schuessler  has been the Executive Vice
President--Finance  and Chief  Financial  Officer of WestPoint  Stevens  Inc., a
textile company, since April 1993. From April 1982 to March 1993, Mr. Schuessler
was  employed by Dixie  Yarns,  Inc., a textile  company,  most  recently as its
Senior Vice President and Chief Financial Officer.

     David W. Young has been a Director of the Company since  December 1997. Mr.
Young  has  served  since  June  1995 as the  Chief  Investment  Officer  of The
Progressive Corporation.  The Progressive Corporation is a $4.8 billion property
and casualty  company.  Prior to that time, Mr. Young served as Senior  Managing
Director of Progressive  Partners from July 1988 to June 1995.  Prior to joining
Progressive  Partners  in 1988,  Mr.  Young was a Vice  President  with  Salomon
Brothers, Inc. from November 1983 to July 1988.

Election of Directors

     Pursuant to the  Certificate of  Incorporation  and By-laws of the Company,
the Board of  Directors  consists  of such number of  directors  as the Board of
Directors  determines from time to time. The number of directors of the Board of
Directors  is set at  nine  and  currently  consists  of  eight  directors.  The
directors  are divided  into three  classes.  The initial  term of office of the
first class of directors ("Class I Directors")  expired at the Annual Meeting of
the Company's  stockholders  in June 1997 and such directors were  re-elected at
that  meeting  for a  three-year  term  expiring  at the  Annual  Meeting of the
Company's  stockholders  in 2000. The initial term of office of the second class
of directors ("Class II Directors") and the third class of directors ("Class III
Directors")  will expire at the Annual Meeting of the Company's  stockholders in
1998 and 1999, respectively.  The terms of office of each class of directors are
staggered so that the terms of no more than one class of  directors  will expire
in any one year. At each Annual Meeting of stockholders,  the directors  elected
to succeed  those  whose  terms then  expire are elected for a term of office to
expire  at the  third  succeeding  Annual  Meeting  of  stockholders,  with each
director  holding  office  until  his or  her  successor  is  duly  elected  and
qualified,  or until his or her earlier  resignation  or removal.  The number of
Class I Directors currently is set at three directors consisting of Mr. Shapiro,
Chairman and Chief Executive  Officer of the Company,  Mr. Stein, Vice Chairman,
Chief Financial  Officer and Treasurer of the Company,  and Mr.  Offermann.  The
number of Class II Directors  currently is set at three directors  consisting of
Mr.  Tipton,  President  of the Company,  Mr.  Gurba and one vacancy,  which The
Structured Finance High Yield Fund LLP has the right to designate for nomination
pursuant  to  rights  granted  to it under the March  1998  Securities  Purchase
Agreement  . The  number  of  Class  III  Directors  is  currently  set at three
directors consisting of Mr. Donlan, Mr. Schuessler and Mr. Young.

     Messrs.  Donlan and Young were named to the Company's Board of Directors in
December  1997.  Messrs.  Donlan and Young were named as  directors  pursuant to
certain rights to nominate  directors  granted to The 1818 Mezzanine  Fund, L.P.
(the "1818 Fund") and Progressive  Investment Company (and an affiliate thereof)
(collectively,  "Progressive"), respectively, under the December 1997 Securities
Purchase  Agreement.  The  Structured  Finance High Yield Fund,  LLP has similar
rights to  designate  a nominee to the Board of  Directors  under the March 1998
Securities


<PAGE>








Purchase Agreement.  In conjunction with Messrs.  Donlan and Young being elected
to the Board of Directors,  Mr. Shapiro was redesignated from a Class I Director
to a Class III Director.

Section 16(a) Beneficial Ownership Reporting Compliance

     In 1997, all stock ownership  reports to be filed by officers and directors
of National Auto Finance Company, Inc. were filed timely.




<PAGE>








Item 11.  Executive Compensation


     The following table sets forth  information  concerning total  compensation
earned by or paid to the Company's Chief Executive Officer and to the four other
most  highly  compensated  executive  officers  of the  Company  employed  as of
December 31, 1997 (the "named executive  officers")  during fiscal 1997 and 1996
for services rendered to the Company.

<TABLE>
<CAPTION>
                                                                              Long-Term
                                                                            Compensation
                                                                            ------------
                                                Annual Compensation            Awards
                                   ---------------------------------------- ------------
                                                                  Other
                                                                  Annual  Securities      All Other
                                                                  Compen- Underlying      Compensa-
Name and Principal Position         Year(1)  Salary     Bonus     sation  Options/SARs       tion
---------------------------         ----     ------     -----     ------  ------------    ---------

<S>             <C>                 <C>    <C>        <C>         <C>        <C>         <C>   
Gary L. Shapiro (3)                 1997   $   --     $   --      $--        27,500      $   --
   Chief Executive Officer          1996       --         --       --          --            --

Roy E. Tipton                       1997    155,000     68,750       (4)     65,000        25,000(5)
   President                        1996    130,000     59,131       (4)       --            --

William G. Magro                    1997    130,000     55,000       (4)     35,000        30,077(6)
   Executive Vice President         1996    110,571     40,839       (4)       --          11,041(6)
     Chief Operating Officer and
     President of the Financial
     Services Division

Kevin G. Adams                      1997    115,000     75,000       (4)     27,000          --
   Senior Vice President,           1996     95,000     35,630       (4)       --            --
     Finance


<PAGE>






Stephen R. Stack(7)                 1997    115,000     45,000       (4)     28,000          --
   Senior Vice President-           1996    105,000     35,251       (4)       --            --
     Sales and Marketing
-------------------
<FN>

(1)  Information  with respect to fiscal years prior to 1996 is not reported due
     to the fact that the Company first became a reporting  company  pursuant to
     the Exchange Act on January 29, 1997.

(2)  Bonuses  for Messrs.  Tipton,  Magro and Stack for  services  rendered in a
     given year are determined by the Compensation Committee of the Board. These
     bonuses are paid by the end of March of the year  following the awarding of
     bonuses. See "--Employment Agreements."

(3)  No  compensation  was received  directly from the Company in 1997 and 1996.
     The Company,  however, paid fees and costs to National Financial,  pursuant
     to a  management  and  service  agreement,  for the  rendering  of  various
     services in support of the Company's operations. Mr. Shapiro is a principal
     owner and the Chairman and Chief Executive Officer of National Financial.

(4)  Reflects  immaterial  amounts that, in the aggregate,  are below reportable
     thresholds  with  respect to 401(k)  contributions  made by the  Company in
     accordance  with the Company's  401(k) Plan and  reimbursement  for certain
     monthly automobile expenses.

(5)  Reflects a bonus for the  execution  by Mr.  Tipton of an  extension of his
     employment contract with the Company.

(6)  Reflects  amounts  paid to Mr.  Magro for  relocation  expenses in 1997 and
     1996, respectively.

(7)  Mr. Stack resigned his position with the Company effective April 16, 1998.
</FN>
</TABLE>

No stock  appreciation  rights were  awarded to,  earned by or paid to the named
executive officers during the fiscal year ended December 31, 1997.

Director Compensation

     Directors who are also employees of the Company (including Gary L. Shapiro,
Chairman of the Board of Directors,  who controls National Financial,  an entity
that receives  certain fees and expenses in connection with management  services
provided  to the  Company  (see  Item  13  "Certain  Relationships  and  Related
Transactions  SYMBOL 45 \f "Symbol" \s  10Management  and Service  Agreements"))
receive no extra  compensation  or retainer fees for their service as members of
the  Board of  Directors  or any  committee  thereof.  Independent  non-employee
directors of the Company receive an annual


<PAGE>








retainer  of  $10,000.  In  addition,  each  independent  non-employee  director
receives $1,000 for each meeting of the Board of Directors attended and $500 for
each meeting of a committee  attended,  plus, in each case, expenses incident to
attendance  at such  meetings.  Stock options  exercisable  for shares of Common
Stock are granted to independent  non-employee directors of the Company pursuant
to the Company's 1996 Share Incentive Plan in order to provide such directors an
opportunity to acquire a proprietary  interest in the Company through automatic,
non-discretionary  awards of Common Stock,  and thus to create in such directors
an increased  interest in and a greater  concern for the welfare of the Company.
The purchase  price of the Common  Stock  covered by such options was set at the
fair  market  value of such  Common  Stock on the date of  grant,  and when such
option  shares were  repriced,  the purchase  price was set at least at the fair
market value of the Common Stock on the date of such  repricing.  These  options
are fully  exercisable on the first  anniversary of the date of grant.  In 1997,
the Company  granted to each  independent  non-employee  director of the Company
stock options to acquire 10,000 shares of Common Stock.

Employment Agreements

     The Company employs each of Roy E. Tipton,  President and William G. Magro,
Executive  Vice  President  and Chief  Operating  Officer and  President  of the
Financial Services Division, and, prior to his resignation,  employed Stephen R.
Stack,  Senior Vice  President--Sales  and  Marketing,  pursuant  to  employment
agreements.

     Effective  September  16,  1995,  the  Company  entered  into a  three-year
employment  agreement with Roy E. Tipton,  President of the Company. In December
1997,  Mr.  Tipton's  agreement  was  extended for one  additional  year through
December 31, 1999. Mr.  Tipton's  annual salary was $155,000 in 1997 and will be
$200,000 in 1998 and $240,000 in 1999.  Mr. Tipton will receive from the Company
an incentive bonus based upon the achievement of certain  performance  goals and
payable on or before March 31 of each of 1999 and 2000. Pursuant to Mr. Tipton's
agreement,  the  incentive  bonus is  computed  as the  lesser  of a  prescribed
fraction of the Company's net annual pre-tax  income and (i) in 1998,  $117,000,
and (ii) in 1999, $146,250.

     Effective  July 1, 1996, the Company  entered into a three-year  employment
agreement with William G. Magro,  Executive  Vice  President of the Company.  In
connection  with Mr.  Magro's  promotion to President of the Financial  Services
Division  of the  Company,  effective  May  17,  1997,  Mr.  Magro's  employment
agreement was amended and now expires on December 31, 2000.  Accordingly,  as of
that date,  Mr.  Magro's  annual base salary in 1997 was  increased to $130,000.
Additionally,  Mr. Magro's  annual salary will be $140,000 in 1998,  $150,000 in
1999, and $175,000 in 2000. Mr. Magro will receive from the Company an incentive
bonus based upon the achievement of certain  performance goals and payable on or
before  March  31 of each of  1999,  2000  and  2001.  Pursuant  to Mr.  Magro's
agreement,  the  incentive  bonus is  computed  as the  lesser  of a  prescribed
fraction of the Company's net annual  pre-tax  income and (i) in 1998,  $84,000,
(ii) in 1999, $90,000 and (iii) in 2000, $105,000.

     Effective  December  30,  1996,  the  Company  entered  into  a  three-year
employment  agreement with Stephen R. Stack,  Senior Vice President of Sales and
Marketing of the Company.  Mr. Stack's annual salary was $115,000 in 1997 and he
received a bonus from the Company of $45,000 for 1997.  Mr.  Stack's  employment
agreement  terminated upon his resignation from the Company  effective April 16,
1998.

     Pursuant to their employment  agreements,  each of Messrs. Tipton and Magro
may  participate in any stock option and benefit plans adopted by the Company or
its successors. In addition, each of such individuals has agreed to maintain the
confidentiality of the Company's proprietary information and, during the term of
his agreement, and up to six months after


<PAGE>








termination  of  employment  at the  discretion  of the Company,  not to compete
directly or indirectly with the business of the Company.

     In the event that Messrs.  Tipton and Magro is  terminated  for "cause" (as
defined in the  employment  agreements),  he will be  entitled  to  receive  all
accrued by unpaid  base  salary,  benefits  and other  compensation  and,  under
certain  circumstances,  an  additional  payment or  payments  equal to his base
salary for a  twelve-month  period.  In the event that Mr.  Tipton  ceases to be
employed by the Company  due to  disability,  he will be entitled to receive all
accrued  but  unpaid  base  salary,  benefits  and  other  compensation  and  an
additional  payment or  payments  equal to his base  salary  for a  twelve-month
period.  In the event that Mr. Magro ceases to be employed by the Company due to
disability,  he will be entitled to receive all accrued but unpaid base  salary,
benefits and other  compensation and an additional  payment or payments equal to
his base salary for a three-month period.  Each of Messrs.  Tipton and Magro may
also  terminate  his  employment  for Good Reason (as defined in the  employment
agreements).  In such  event,  such  individual  will be  entitled to receive an
amount  equal to the  remaining  unpaid  balance of his base salary for the full
remaining  term of his  agreement  and Mr. Magro will receive an amount equal to
his base salary for a six-month period.  Additionally,  Mr. Tipton has the right
to  terminate  his  employment  agreement,  upon one hundred  twenty  (120) days
written notice,  in the event that the Company retains a Chief Executive Officer
(other  than Mr.  Tipton  or Mr.  Shapiro)  during  the  term of his  employment
Agreement.

Option Grants

     The following table sets forth stock options granted in 1997 to each of the
Company's  executive  officers  named in the  Summary  Compensation  Table.  The
Company did not issue any stock  appreciation  rights. The table also sets forth
the  hypothetical  gains  that would  exist for the  options at the end of their
ten-year  terms for the  executive  officers  named in the Summary  Compensation
Table at assumed  compound  rates of stock  appreciation  of 0%, 5% and 10%. The
actual  future  value of the  options  will  depend on the  market  value of the
Company's  Common Stock. All of the exercise prices of the options listed in the
chart below  reflect the  re-pricing  of those options to $5.25 per share by the
Company's Board of Directors in December 1997.



<PAGE>





<TABLE>
<CAPTION>

                      Option/SAR Grants in Last Fiscal Year


                               Individual Grants
                      -----------------------------------
                                  Percent
                                  of Total
                       Number of  Options/
                        Securiti   SARs                   Potential Realizable Value
                       Underlying Granted  Exercise        at Assumed Annual Rates
                        Options/ Employees or Base       of Stock Price Appreciation
                          SARs   in Fiscal  Price Expiration    For Option Term(a)
 Name                   Granted    (Year)  ($/Sh)   Date      5%($)     10%($)
---------------------   --------    ----    ----  -------   --------   --------
<S>                       <C>       <C>    <C>    <C>       <C>        <C>     
 Gary L. Shapiro          27,500    0.09%  $5.25  1/29/07   $ 90,797   $230,097
 Roy E. Tipton            50,000    1.71%   5.25  1/29/07    165,085    418,357
                          15,000    0.05%   5.25  9/11/07     49,525    125,507
 William G. Magro         35,000    1.19%   5.25  1/29/07    115,559    292,850
 Kevin G. Adams           27,000    0.09%   5.25  1/29/07     89,146    225,913
 Stephen R. Stack         28,000    0.10%   5.25  1/29/07     92,448    234,280

</TABLE>

(a)  These amounts, based on assumed appreciation rates of 5% and 10%, the rates
     prescribed  by the  Securities  and  Exchange  Commission  rules,  are  not
     intended to forecast possible future appreciation, if any, of the Company's
     stock price.

     The following table sets forth the number of shares acquired on exercise of
stock  options and the  aggregate  gains  realized  upon exercise in 1997 by the
Company's  named  executive  officers.  The table  also sets forth the number of
shares covered by exercisable and unexercisable  options held by such executives
on December 31, 1997 and the  aggregate  gains that would have been realized had
these  options been  exercised on December 31. 1997,  even though these  options
were not exercised, and the unexercisable options could not have been exercised,
on December 31, 1997. The Company did not issue stock appreciation rights.

                            FY-End Option/SAR Values


                         Number of Securities
                        Underlying Unexercised     Value of Unexercised In-The-
                         Options/SARs at FY-        Money Options/SAR at Fiscal
                              End (a) ($)                 Year End (a) ($)
Name                    Exercisable  Unexercisable  Exercisable  Unexercisable

Gary L. Shapiro             9,167      18,333         $  --          $--
Roy E. Tipton              21,667      43,333            --           --
William G. Magro           11,667      23,333            --           --
Kevin G. Adams              9,000      18,000            --           --
Stephen R. Stack            9,333      18,667            --           --

(a)   None of the options were in the money as of December 31, 1997.


<PAGE>









Compensation Committee Interlocks and Insider Participation

     The Board of  Directors  formed the  Compensation  Committee  in June 1997.
Since that time, Gary L. Shapiro,  Chairman and Chief  Executive  Officer of the
Company,  and directors  Peter Offermann and Morgan M. Schuessler have served as
members  of the  Compensation  Committee.  Joseph P.  Donlan  became a member in
December 1997.  Since the formation of the Compensation  Committee,  Mr. Shapiro
served as Chairman of the Compensation Committee. The Company has entered into a
management  agreement and a services  agreement with National Financial in which
the Company pays fees and costs to National  Financial  for services it provides
the    Company.    See   Item   13    "Certain    Relationships    and   Related
Transactions-Management  and Services  Agreements."  Mr. Shapiro is the Chairman
and Chief Executive Officer and a principal owner of National Financial, and Mr.
Stein is a managing director of National  Financial.  Mr. Shapiro is the general
partner of The S Associates Limited Partnership (the "S Associates"), which is a
limited partner of the National Auto Partnership, the largest stockholder of the
Company.




<PAGE>








Item 12.  Security Ownership of Certain Beneficial Owners and Management

     The following  table sets forth certain  information  regarding  beneficial
ownership of the Company's Common Stock as of March 31, 1998, by (i) each person
who is known  by the  Company  to own  beneficially  5.0% or more of the  Common
Stock;  (ii) each  director of the  Company,  (iii) each of the named  executive
officers;  and (iv) all  directors  and  executive  officers as a group.  Unless
otherwise  indicated,  the Company  believes all persons listed have sole voting
power and investment power with respect to such shares.

                 Name and Address                    Number of
            of Beneficial Ownership (1)(2)         Shares  Percent

National Auto Finance Company L.P. (3)......   4,230,000    46.8%
   621 N.W. 53rd Street, Suite 200
   Boca Raton, Florida  33487
The Progressive Investment Company, Inc.....   1,506,480    16.0%
   401 Theodore Fremd Avenue
   Rye, New York  10580
The 1818 Mezzanine Fund, L.P................   1,177,475    12.5%
   59 Wall Street
   New York, New York  10005
The Structured Finance High Yield Fund, LLC      593,671     6.2%
   One Gateway Center
   Newark, New Jersey  07102
Morgan Guaranty Trust Company of New York,
  as trustee (4)............................     496,000     5.5%
   522 Fifth Avenue
   New York, New York  10036
Gary L. Shapiro (5) (6).....................      20,334     *
Keith B. Stein (5)..........................      49,333     *
Roy E. Tipton (5)...........................      48,833     *
William G. Magro............................      33,334     *
Tim W. Carter...............................      12,000     *
Stephen R. Stack............................      18,667     *
Stephen L. Topp.............................       8,834     *
Kevin G. Adams..............................      18,000     *


<PAGE>








Joel B. Ronkin..............................       5,000     *
Melissa J. Grimm............................       5,000     *
Brent E. Wombolt............................       7,500     *
James E. Shuler.............................       7,500     *
Stephen L. Gurba (5)........................          --     *
Peter Offermann.............................       6,000     *
Morgan M. Schuessler........................          --    --
Joseph P. Donlan (7)........................          --    --
David W. Young (8)..........................          --    --
  All directors and executive officers
    as a group (17 persons).................     240,335    2.6%

-------------------
*  Represents less than 1.0%

(1)  The  business  address  of  each of the  directors  and  current  executive
     officers  listed in the table above is c/o National  Auto Finance  Company,
     Inc., 621 N.W. 53rd Street, Suite 200, Boca Raton, Florida 33487.

(2)  Except as otherwise indicated,  includes total number of shares outstanding
     and the number of shares that each  person has the right to acquire  within
     60 days from March 31, 1998 through the exercise of options or warrants and
     excludes  shares  that each  person has the right to acquire  after 60 days
     from March 31, 1998 through the exercise of options.

(3)  The general  partner of the  National  Auto  Partnership  is National  Auto
     Finance Corporation  ("National Auto").  National Auto holds a 1.0% general
     partner interest in the National Auto Partnership. Mr. Shapiro owns capital
     stock  of  National  Auto.  The  limited  partners  of  the  National  Auto
     Partnership include,  among others, S Associates,  the First Union Partner,
     Stephen L. Gurba, Keith B. Stein, Roy E. Tipton,  William G. Magro, Stephen
     R.  Stack and  Kevin G.  Adams.  Mr.  Shapiro  owns all of the  outstanding
     capital  stock of the  general  partner of S  Associates.  The First  Union
     Partner  holds a vested  15.0%  limited  partner  economic  interest in the
     National Auto  Partnership.  The remaining limited partners of the National
     Auto   Partnership  hold  the  balance  of  the  limited  partner  economic
     interests.  The First  Union  Partner  may earn up to an  additional  34.0%
     limited partner economic  interest (or an aggregate of approximately  49.0%
     when added to the First Union  Partner's  current vested  economic  limited
     partner  interest),  thus  diluting  the  other  limited  partners  but not
     diluting  the public  stockholders  of the  Company,  over a period of time
     expiring on January 31, 1999 (the  "Adjustment  Period") based upon various
     factors specified in the National Auto Partnership agreement, including the
     overall  performance  of the First Union  Strategic  Alliance and the total
     market  value of the company  over the  Adjustment  Period.  Except for the
     First Union Partner,  each limited partner of the National Auto Partnership
     has the right to vote on certain  matters  specified in the  National  Auto
     Partnership  agreement   commensurate  with  each  such  limited  partner's
     respective  economic  limited  partner  interest.  In  accordance  with the
     National Auto Partnership agreement, the consent of the First Union Partner
     is generally required before the National Auto Partnership may take certain
     fundamental actions. The Company and First Union have agreed to allow First
     Union up to and  including  May 15,  1998 to notify  the  Company  of First
     Union's renewal or non-renewal of the referral agreement for an


<PAGE>








     additional year.

(4)  Includes  shares  held by Morgan  Guaranty  Trust  Company of New York,  as
     trustee of each of the Commingled Pension Trust Fund (Multi-market  Special
     Investment  Fund II) of Morgan  Guaranty  Trust Company of New York and the
     Multi-market Special Investment Trust Fund of Morgan Guaranty Trust Company
     of New  York and as  investment  manager  and  agent  for an  institutional
     investor.

(5)  Excludes  shares held by the National  Auto  Partnership.  Each such person
     disclaims beneficial ownership with respect to such shares.

(6)  NovaCorporation,  of which Mr.  Shapiro and  certain of his family  members
     directly and indirectly hold 50.0% of the capital stock,  hold 2,000 shares
     of Common Stock.

(7)  Mr. Donlan is the co-manager of the 1818 Mezzanine Fund,  L.P., which holds
     761,905  shares of the  Company's  Common  Stock and  Warrants  to purchase
     415,570 shares of the Company's Common Stock at $0.01 per share.

(8)  Mr. Young is the Chief  Investment  Officer of The  Progressive  Investment
     Company,  Inc.,  which holds 1,142,857 shares of the Company's Common Stock
     and Warrants to purchase  363,623  shares of the Company's  Common Stock at
     $0.01 per share.


Item 13.  Certain Relationships  and Related Transactions

General

    The Company,  from time to time, has entered into  transactions with certain
of its principals, stockholders and entities in which they have an interest. The
Company  believes that each such transaction has been on terms no less favorable
to  the  Company  than  could  have  been  obtained  in a  transaction  with  an
independent third party.

Reorganization

    The National Auto  Partnership  and Auto Credit  Clearinghouse  L.P.  ("ACCH
Partnership")  were organized in October 1994 and September 1995,  respectively,
and  conducted  the business of the Company until January 29, 1997. On that day,
in connection with the closing of the Company's Initial Public Offering, (i) the
assets and liabilities of the ACCH  Partnership were transferred to the National
Auto Partnership, (ii) the ACCH Partnership was dissolved, and (iii) immediately
thereafter


<PAGE>








the assets and liabilities of the National Auto  Partnership were transferred to
the Company in exchange for all of the Common Stock then  outstanding and all of
the  preferred  stock of the Company then  outstanding  (the  "Reorganization").
Directors  and  executive  officers  of the  Company  had a direct and  material
interest  in  certain   transactions  that  constituted  the  Reorganization  as
described below. The Company believes that the terms of such  transactions  were
as favorable as those that could have been obtained from an  unaffiliated  third
party.

First Union

   The National Auto Partnership

    The  First  Union  Partner  is  a  limited  partner  of  the  National  Auto
Partnership  and holds a vested 15.0% limited partner  economic  interest in the
National Auto Partnership.  The First Union Partner may earn up to an additional
34.0% limited partner economic interest (or an aggregate of approximately  49.0%
when added to the First Union Partner's current vested economic interest),  thus
diluting  the other  limited  partners  but not the public  stockholders  of the
Company,  over a period of time expiring on January 31, 1999, based upon various
factors, including the overall performance of the First Union Strategic Alliance
and the total market value of the Company.

    The National Auto  Partnership  Agreement  provides,  in part, that upon the
certain named events (collectively,  the "Put Events"),  the First Union Partner
has the right to cause the National Auto  Partnership  to redeem the First Union
Partner  interest.  The Put Events include:  (i) the withdrawal of National Auto
from the  National  Auto  Partnership  or the addition of one or more persons as
general  partners  thereof (except that such withdrawal and subsequent  addition
are not considered a Put Event if any of National Auto, Gary Shapiro or Edgar A.
Otto  is  in  control  of  the  then  general   partner  of  the  National  Auto
Partnership), (ii) any ownership exchanges which have specified tax consequences
with  respect  to  National  Auto,  (iii)  any  merger,  consolidation  or other
reorganization  of the National Auto Partnership or its business (except that no
Put  Event  will be  deemed  to have  occurred  if there is not a change  in the
business  of the  National  Auto  Partnership  or the  substantive  terms of the
National Auto Partnership  Agreement and the First Union Partner's  interests in
the  National  Auto   Partnership   are  not  adversely   affected),   (iv)  the
classification  of the National Auto Partnership as an association  taxable as a
corporation or a publicly traded partnership, (v) December 2002, (vi) subject to
certain  exceptions,  a transfer of partner  interests which,  when added to all
prior transfers,  if any, represents aggregate changes in ownership of more than
29.0% of the total  partner  interest  and (vii) the  existence  of a regulatory
requirement  that  prevents the First Union  Partner  from owning its  ownership
interest in the National Auto Partnership.  The Partnership  Agreement provides,
further,  that upon the National Auto Partnership's receipt from the First Union
Partner of a put notice pursuant to which First Union requests redemption of its
interest in the National  Auto  Partnership,  National Auto has the right to (i)
dissolve  the  National  Auto  Partnership,  (ii) sell or  exchange  100% of the
interests of the National Auto Partnership, (iii) sell or exchange 100.0% of the
property of the  National  Auto  Partnership  or (iv) offer  publicly the equity
securities of the National Auto  Partnership.  Upon receipt from the First Union
Partner of a put notice,  the  National  Auto  Partnership  may redeem the First
Union  Partner's  interest  in shares of Common  Stock or in such  other form of
consideration as may be agreed upon.

   The First Union Strategic Alliance

    Pursuant to the Company's  referral  agreement with First Union, First Union
causes  First  Union  Auto  Finance  to  (i)   introduce   the  Company  to  the
approximately  3,400  Dealers  throughout  twelve  states  and the  District  of
Columbia  with which First Union Auto Finance has an existing  relationship  and
(ii) refer on an  exclusive  basis to the  Company  certain  Non-Prime  Consumer
credit  applications for Loans received from such Dealers.  In consideration for
such services, First Union receives


<PAGE>








a fee on each Loan  purchased  by the  Company  as a result  of the First  Union
Strategic Alliance.  Pursuant to the referral  agreement,  funded Loan referrals
are without  recourse to First Union. The parties are,  however,  liable to each
other for any breach of their respective  presentations,  warranties,  covenants
and  indemnities.  The term of the  referral  agreement is for a period of three
years that currently  terminates in April 2000.  Subject to the consent of First
Union,  the  referral  agreement  may be  renewed  in April of each  year for an
additional  year,  such that,  after each  renewal,  the  remaining  term of the
referral agreement continues to be three years. The Company and First Union have
agreed to allow  First  Union up to and  including  May 15,  1998 to notify  the
Company of First Union's renewal or non-renewal of the referral agreement for an
additional  year.  First Union may terminate the referral  agreement upon, among
other  things,  a "change of control" of the Company.  In the event the referral
agreement is terminated,  the Company, may, however,  continue the relationships
it has established with First Union-related  Dealers. In addition,  the referral
agreement  precludes the Company from purchasing Loans from First  Union-related
Dealers through other Strategic  Alliances in the same geographic areas as those
covered by the First Union Strategic Alliance.

   Lending

    First Union  National  Bank of North  Carolina,  a subsidiary of First Union
Corporation,  is the sole holder of the Class B Certificates  that relate to the
Revolving Securitization.  Additionally, First Union National Bank of Florida, a
subsidiary of First Union Corporation, has agreed to lend the Company up to $1.5
million for furniture and equipment  purchases for the Company's  service center
and the Company's corporate headquarters.

   Placement Agent and Underwriting

    First Union Capital Markets Corp.  ("FUCMC"),  a wholly-owned  subsidiary of
First Union  Corporation  has served as placement agent for the Morgan Notes and
the Senior  Subordinated  Notes.  FUCMC has also  privately  placed and acted as
underwriter for a public  offering of asset-backed  securities of the Company in
connection with the Company's  securitization  transactions  and may continue to
act as placement  agent or underwriter for the Company's  future  securitization
and financing activities.

   Registration Rights

    Pursuant to a  registration  rights  agreement  with the Company,  the First
Union Partner was granted certain rights with respect to the registration  under
the  Securities  Act of Common  Stock  distributed  to it by the  National  Auto
Partnership  (no such  distribution  has been  made as of the date of this  Form
10-K).

    Under the  registration  rights  agreement,  the First Union Partner can, in
certain circumstances,  require the Company to effect up to two registrations of
any or all of the First Union  Partner's  share of Common Stock.  The Company is
not  required to honor such  request to register  shares of Common  Stock if the
request is made within 90 days of a firm commitment underwritten public offering
or before the expiration of any lock-up period  required by the  underwriters in
connection therewith.



<PAGE>








    In addition, if the Company proposes to file a registration  statement under
the  Securities  Act with  respect to an  offering  by the  Company,  in certain
circumstances  the First Union  partner  can  exercise  piggy-back  registration
rights to request participation in the offering.  The Company is not required to
honor,  in full,  any such  request to register  shares of Common  Stock if such
request  would  reduce  the number or amount of  securities  to be issued by the
Company in any such offering to an amount which,  in the opinion of the Board of
Directors  of the  Company,  is below  that which is  necessary  and in the best
interests  of the  Company.  Furthermore,  if an  underwritten  offering and the
underwriter delivers a written opinion that marketing  considerations  require a
limitation  on the  number  of  securities  to be  sold,  then the  First  Union
Partner's piggyback  registration rights shall be reduced pro rata to the extent
necessary to comply with the underwriter's recommendations.

Senior Subordinated Indebtedness

   General

    In December 1997, the Company  completed the December  Private  Placement of
$10  million  in  common  stock  and $40  million  principal  amount  of  Senior
Subordinated  Notes with detachable  Warrants.  The private placement of the $10
million in Common  Stock  resulted  in the  issuance  of  761,905  shares of the
Company's Common Stock, to the 1818 Fund., and 1,142,857 shares of the Company's
Common Stock to  Progressive.  The Senior  Subordinated  Notes,  which mature in
seven years,  bear interest at 11.875% per annum for the first three years,  and
increase to 12.875% in year four,  13.875% on year five and 14.875% in years six
and seven.  In  connection  with the  December  Private  Placement of the Senior
Subordinated  Notes,  the Company  issued  detachable  Warrants  with a ten-year
maturity,  exercisable  into Common Stock of the Company at $0.01 per share. The
Senior  Subordinated  Notes  and  Warrants  were  purchased  by the  1818  Fund,
Progressive and  Manufacturers  Life Insurance  Company (USA)  ("ManuLife").  In
connection with the December  Private  Placement,  the 1818 Fund and Progressive
are entitled to nominate,  collectively,  two individuals to the Company's Board
of Directors.  The 1818 Fund and Progressive did nominate two individuals to the
Company's Board of Directors, and, accordingly,  on December 22, 1997, Joseph P.
Donlan  and David W. Young were  elected as Class III Board  members  with terms
expiring at the Company's Annual Meeting in 1999.

   Registration Rights

    Pursuant to a  registration  rights  agreement,  the Company has granted the
1818  Fund,  Progressive,  ManuLife,  the First  Union  Partner,  FSA and others
certain  rights with respect to the  registration  under the  Securities  Act of
Common  Stock held by it. Under the  registration  rights  agreement,  the other
entities can, in certain circumstances,  require the Company to effect up to two
registrations  of any or all of the their shares of Common Stock. The Company is
not  required to honor such  request to register  shares of Common  Stock if the
request is made within 90 days of a firm commitment underwritten public offering
or before the expiration of any lock-up period  required by the  underwriters in
connection therewith.

    In addition, if the Company proposes to file a registration statement (other
than a Registration  Statement on Form S-4 or S-8 or any successor forms to such
Forms) under the Securities  Act with respect to an offering by the Company,  in
certain circumstances the 1818 Fund and Progressive,  among others, can exercise
incidental  registration  rights to request  participation in the offering.  The
Company is not required to honor any such  request to register  shares of Common
Stock if, in an  underwritten  offering,  the  underwriter(s)  have  advised the
Company in  writing  that the  number of shares  requested  by the 1818 Fund and
Progressive to be registered  exceeds the number of securities  that can be sold
in such offering within an acceptable price range.


<PAGE>








Junior Subordinated Indebtedness

    During  1994,  Gary L.  Shapiro,  Edgar A. Otto and Stephen L. Gurba  loaned
$1,525,000,  $3,675,000 and $123,733, respectively, to the Company. During 1995,
Messrs.  Shapiro and Otto loaned  $539,000 and  $342,000,  respectively,  to the
Company.  During 1995, Nova Financial Corporation and Nova Corporation,  each of
which is a privately-held  corporation  controlled by Messrs.  Shapiro and Otto,
loaned $100,000 and $1,115,000,  respectively, to the Company. During 1996, Nova
Corporation  loaned  $700,000 to the  Company.  All of such loans were made on a
junior  subordinated  basis and in exchange for the Junior  Subordinated  Notes.
Each of the Junior Subordinated Notes bears interest at a rate of 8.0% per annum
payable  quarterly in arrears and matures on December 20, 2004. During 1996, the
Company repaid $511,000 and $461,000 to Messrs. Shapiro and Otto,  respectively.
In January  1997, a portion of the Company's  proceeds  from the Initial  Public
Offering  were used to repay  $2,594,186,  $1,302,131,  $1,122,361,  $90,018 and
$72,754 to Mr. Otto, Nova Corporation, Mr. Shapiro, Mr. Gurba and Nova Financial
Corporation,   respectively.   As  of  December  31,  1997,   the  Company  owed
approximately $2.0 million (including $39,000 of accrued and unpaid interest) on
the Junior  Subordinated  Notes.  The Company believes that the terms of each of
the Junior  Subordinated Notes are as favorable as could have been obtained from
an unaffiliated third party.

Management and Service Agreements

    The  Company  is party to a  management  agreement  and a service  agreement
pursuant to which National Financial  provides  operational,  financial,  legal,
accounting,  management,  advisory and other administrative services relating to
the management,  business  operations,  assets and interests of the Company. The
Company  pays a fixed fee of  $540,000  per year,  plus  other  fees,  costs and
expenses, to National Financial for such services. The Company believes that the
terms of the management  agreement and the service agreement are as favorable as
could  have been  obtained  from an  unaffiliated  third  party  for  comparable
services.  The Company, with board approval,  may from time to time request that
National Financial augment the services provided by National  Financial,  or its
successors or assigns,  under the management  agreement and service agreement to
the Company and,  accordingly,  the Company would pay additional  fees for those
services.  The  terms of any such  agreement  would  be,  however,  on terms the
Company  considers as favorable as could have been obtained from an unaffiliated
third party for comparable services.  Each of Gary L. Shapiro and Keith B. Stein
is a member of and an  executive  officer of National  Financial,  an  executive
officer of National Auto and a director and officer of the Company.

     National  Auto holds a 1% general  partner  interest in the  National  Auto
Partnership.  A majority of the  outstanding  capital  stock of National Auto is
owned  collectively  by Messrs.  Shapiro and Otto.  The limited  partners of the
National  Auto  Partnership  include,  among  others,  the S  Associates,  the O
Associates,  the First Union Partner,  Keith B. Stein, Roy E. Tipton, William G.
Magro, Stephen R. Stack and Kevin G. Adams. Messrs.  Stein, Tipton, Magro, Stack
and Adams are all  executive  officers of the  Company,  and  Messrs.  Stein and
Tipton are directors of the Company.  Mr. Shapiro,  who is Chairman of the Board
and Chief Executive Officer of the Company,  is the trustee of a trust that owns
all of the outstanding capital stock of the general partner of S Associates. Mr.
Otto owns all of the  outstanding  capital  stock of the  general  partner  of O
Associates.  The remaining  limited  partners of the National Auto  Partnership,
which include  members of the management and employees of the Company,  hold the
balance of the limited partner economic interests.



<PAGE>








Pro-Travel and InfoTech

    The Company uses the services of Pro-Travel, a travel agency, for its travel
needs. Pro-Travel is a privately-held corporation,  98% owned by Mr. Shapiro and
his wife. All fees charged by Pro-Travel  are at the customary  rates charged by
other  third-party  providers.  The Company intends to continue using Pro-Travel
for its travel needs.

   Further, in 1997, the Company used the services of InfoTech  Professionals of
South  Florida,  Inc.,  an  employment  placement  agency,  for the retention of
certain of the Company's MIS personnel. Mr. Shapiro is a majority stockholder of
InfoTech,  a  privately-held  corporation.  In 1997,  the Company paid  InfoTech
approximately  $31,200 in placement  agency fees. The Company  believes that the
fees charged by InfoTech were at rates  comparable to those charged by unrelated
third-party providers.

Software Sublicense Agreement

    The Company  sublicenses  the right to use the CLASS software  platform from
Pinnacle  Portfolio  Services LLC  ("Pinnacle"),  which is controlled by Messrs.
Shapiro,  Gurba and Stein, directors of the Company. The Company paid Pinnacle a
$1.00  fee  for  the  sublicense  and  assumed  Pinnacle's   obligation  to  pay
approximately  $862,500 in licensing fees to BNI, Inc. ("BNI"),  the licensor of
the CLASS  system.  Pinnacle  has agreed  that,  in the event that it  generates
revenues  through  its use, if any, of the  licensed  programs,  it will pay the
Company,  quarterly in arrears,  2% of its gross  revenues until the Company has
received  $432,000 from Pinnacle  (representing  approximately  50% of the total
licensing  fees due to BNI under the license  agreement).  In  addition,  in the
event  there  is a  change  in  ownership  of the  Company  (as  defined  in the
sublicense  agreement),  the party  undergoing  the change in ownership  will be
obligated to pay BNI a transfer fee of $375,000.

Indebtedness of Management

    In 1997, the Company loaned Mr. Magro $100,000, pending the sale of his home
residence in Palm Beach County in connection with his relocation to Jacksonville
to manage the Company's  Financial  Services  Division.  As part of Mr.  Magro's
agreement to relocate to  Jacksonville,  the Company  agreed to forgive all or a
portion of that loan based on the sale price of Mr. Magro's residence. Mr. Magro
sold his  residence  in March  1998 and paid the  Company  $59,146  towards  the
principal  owed on the  $100,000  Loan.  Accordingly,  $40,854  of the  Loan was
forgiven by the Company.



<PAGE>
Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

 a) Exhibits

Number      Description                   Method of Filing
------      -----------                   ----------------

3.1  Certificate of Incorporation of the Company.(1)

3.1-1 Certificate  of the  Designations,  Preferences and Rights of the Series A
     Preferred Stock of the Company.(3)

3.2  By-laws of the Company.(1)

4.1  Certificate of Common Stock.(4)

4.2-1Promissory Note,  dated October 31, 1994,  payable by National Auto Finance
     Company L.P. to the order of Gary L. Shapiro.(1)

4.2-1Amended and Restated  Promissory Note, dated as of January 3, 1997, payable
     by National Auto Finance L.P. to the order of Gary L. Shapiro.(3)

4.3  Promissory  Note,  dated October 6, 1994,  payable by National Auto Finance
     Company L.P. to the order of Edgar A. Otto.(1)

4.3-1Amended and Restated  Promissory Note, dated as of January 3, 1997, payable
     by National Auto Finance Company L.P. to the order of Edgar A. Otto.(3)


<PAGE>

4.4  Promissory Note,  dated November 8, 1994,  payable by National Auto Finance
     Company L.P. to the order of Stephen L. Gurba.(1)

4.4-1Amended and Restated  Promissory Note, dated as of January 3, 1997, payable
     by national Auto Finance Company L.P. to the order of Stephen L. Gurba.(3)

4.5  Promissory  Note,  dated March 27, 1995,  payable by National  Auto Finance
     Company L.P. to the order of Nova Financial Corporation.(1)

4.5-1Amended and Restated  Promissory Note, dated as of January 3, 1997, payable
     by  National  Auto  Finance  Company  L.P.  to the order of Nova  Financial
     Corporation.(3)

4.6  Promissory  Note,  dated May 1, 1995,  payable  by  National  Auto  Finance
     Company L.P. to the order of Nova Corporation.(1)

4.6-1Amended and Restated  Promissory Note, dated as of January 3, 1997, payable
     by National Auto Finance Company L.P. to the order of Nova Corporation.(3)

4.7  Securities Purchase Agreement (the "Securities  Purchase Agreement") by and
     among National Auto Finance  Company,  Inc., The 1818 Mezzanine Fund, L.P.,
     PC  Investment  Company,   Progressive   Investment   Company,   Inc.,  and
     Manufacturers Life Insurance Company (U.S.A.) dated December 22, 1997.(5)*

4.7-1Waiver and  Amendment No. 1 to the  Securities  Purchase  Agreement,  dated
     March 27, 1998, by and among National Auto Finance Company,  Inc., The 1818
     Mezzanine  Fund,  L.P.,  PC  Investment  Company,   Progressive  Investment
     Company, Inc. and Manufacturers Life Insurance Company.(5)*



<PAGE>

4.8  Form  of  Senior  Subordinated  Promissory  Note  issued  pursuant  to  the
     Securities Purchase Agreement.(5)*

4.9  Form of Warrant to Purchase Shares of Common Stock of National Auto Finance
     Company, Inc. issued pursuant to the Securities Purchase Agreement.(5)*

4.10 Agreement,  dated March 27,  1998,  by and between  National  Auto  Finance
     Company, Inc. and The Structured Finance High Yield Fund, LLC.(5)*

4.11 Senior  Subordinated  Promissory  Note,  dated March 27, 1998,  executed by
     National Auto Finance Company, Inc. in favor of The Structured Finance High
     Yield Fund, LLC, in the amount of $20,000,000.00.(5)*

4.12 Warrant,  issued March 27, 1998, executed by National Auto Finance Company,
     Inc.(5)*

10.1 Second  Amended and Restated  Agreement of Limited  Partnership  of NatAuto
     Finance Company L.P.,  dated as of September 1, 1995, by and among National
     Auto Finance  Corporation,  The S  Associates  Limited  Partnership,  The O
     Associates  Limited  Partnership,  Stephen L. Gurba,  Craig Schnee,  Roy E.
     Tipton,  Blane H. MacDonald,  Michael B. Colley,  Irwin I. Kent, William G.
     Magro,  Kevin G.  Adams,  Kamala R.  Chapman,  Keith B.  Stein,  Colleen S.
     McMillen,  Richard H. Steffer, Tim Rooney, Lynn Dunham-Sirota and IronBrand
     Capital, LLC.(1)

10.1-1First  Amendment  to Second  Amended and Restated  Partnership  Agreement,
     dated December 1, 1996.(3)



<PAGE>

10.2 1996 Share Incentive Plan.(3)

10.3 401(k) Plan.(1)

10.4 Employment  Agreement,  dated as of July 1,  1996,  between  National  Auto
     Finance Company, Inc. and William G. Magro.(3)

10.4-1 First  Amendment  to  Employment  Agreement,  dated  as of May 27,  1997,
     between National Auto Finance Company, Inc. and William G. Magro.(5)

10.5 Employment Agreement, dated as of September 16, 1995, between National Auto
     Finance Company, Inc. and Roy E. Tipton.(3)

10.5-1 First Amendment to Employment  Agreement,  Dated as of December 16, 1997,
     between National Auto Finance Company, Inc. and Roy E. Tipton.(5)

10.6 Employment  Agreement,  dated as of October 19, 1995, between National Auto
     Finance Company, Inc. and Blane H. McDonald.(3)

10.7 Employment Agreement,  dated as of December 31, 1996, between National Auto
     Finance Company, Inc. and Stephen R. Stack.(3)

10.8 Receivables  Purchase  Agreement,  dated as of  December  8,  1994,  by and
     between  National Auto Finance  Company L.P., as Seller,  and NAFCO Funding
     Trust, as Purchaser.(1)



<PAGE>








10.9 Promissory Note, dated December 8, 1994,  payable by NAFCO Funding Trust to
     the order of National Auto Finance Company L.P.(1)

10.10NAFCO Auto Receivables Master Trust Pooling and  Administration  Agreement,
     dated as of December 8, 1994,  among NAFCO Funding  Trust,  as  Transferor,
     National Auto Finance Company L.P., as the Administrator, and Bankers Trust
     Company, as Trustee.(1)

10.10-1  Consent  and  Amendment,  dated  as of  July 2,  1996,  to  NAFCO  Auto
     Receivables Master Trust Pooling and Administration Agreement,  dated as of
     December 8, 1994,  among NAFCO Funding Trust, as Transferor,  National Auto
     Finance Company L.P., as the Administrator,  and Bankers Trust Company,  as
     Trustee.(5)*

10.11Series  1994-R,  Class B  Supplement,  dated as of December 8, 1994, to the
     Pooling and Administration  Agreement,  dated as of December 8, 1994, among
     NAFCO Funding Trust, as Transferor,  National Auto Finance Company L.P., as
     the Administrator, and Bankers Trust Company, as Trustee.(1)

10.12Trust  Agreement,  dated as of  October  5,  1994,  between  National  Auto
     Finance Corporation and Bankers Trust.(1)

10.13First Amendment and Restated Trust Agreement of NAFCO Funding Trust,  dated
     as of December 8, 1994,  between  National  Auto Finance  Company  L.P., as
     Depositor,  The Chase  Manhattan  Bank (USA),  as Owner Trustee and Gary L.
     Shapiro and Edgar A. Otto, as Co-Trustees.(1)

10.14Amended and Restated Servicing Agreement,  dated as of December 5, 1994, by
     and between World Omni Financial  Corp.  and National Auto Finance  Company
     L.P.(1)


<PAGE>








10.14-1  Amendment  to Amended and  Restated  Servicing  Agreement,  dated as of
     September 6, 1995,  by and among World Omni  Financial  Corp.  and National
     Auto Finance Company L.P.(5)*

10.14-2 Second Amendment to Amended and Restated Servicing  Agreement,  dated as
     of June 24, 1997, by and between Omni Financial Services of America,  Inc.,
     as  assignee of World Omni  Financial  Corp.,  and  National  Auto  Finance
     Company, Inc., as assignee of National Auto Finance Company L.P.(5)*

10.14-3 Third Amendment to the Amended and Restated Servicing  Agreement,  dated
     as of  September  12,  1997,  by and  between  Omni  Financial  Services of
     America, Inc. and National Auto Finance Company, Inc.(5)*

10.14-4 Fourth Amendment to the Amended and Restated Servicing Agreement,  dated
     as of October 12, 1997, by and between Omni Financial  Services of America,
     Inc.(5)*

10.14-5 Supplement to the Amended and Restated Servicing Agreement,  dated as of
     December  5, 1994,  as amended  as of October 1, 1995,  between  World Omni
     Financial Corp.  ("WOFC"),  as Servicer,  and National Auto Finance Company
     L.P., dated as of November 21, 1995 by and between Omni Financial  Services
     of America, Inc., as assignee of WOFC ("Servicer") and NAFCO.(1)

10.14-6 Supplement to the Amended and Restated Servicing Agreement,  dated as of
     December  5, 1994,  as amended  as of October 1, 1995,  between  World Omni
     Financial  Corp.  (WOFC) and National  Auto Finance  Company L.P.  (NAFCO),
     dated as of November  13, 1996 by and between  Omni  Financial  Services of
     America, Inc., as assignee of WOFC, and NAFCO.(2)

10.14-7  Supplement  to Amended and Restated  Servicing  Agreement,  December 5,
     1994,  as amended as of October 1, 1995 and November 13, 1996,  dated as of
     July 23, 1997, by and between Omni Financial Services of America,  Inc. and
     National Auto Finance Company, Inc.(5)*



<PAGE>








10.14-8  Supplement  to Amended and Restated  Servicing  Agreement,  dated as of
     December 5, 1994, as amended as of October 1, 1995,  June 24, 1997 and July
     21, 1997 and supplemented as of November 21, 1995,  November 13, 1996, July
     12, 1997 and September 19, 1997, by and between Omni Financial  Services of
     America, Inc. and National Auto Finance Company, Inc.(5)*

10.15Certificate  Purchase  Agreement,  dated as of December 8, 1994, among NAFI
     Funding Trust, National Auto Finance Company L.P., as Initial Administrator
     and First Union National Bank of North Carolina.(1)

10.16Management  Agreement,  dated  as of  December  29,  1994,  by and  between
     National   Auto   Finance   Company   L.P.   and   National   Auto  Finance
     Corporation.(1)

10.16-1 First Amendment of Management Agreement, dated as of January 1, 1996, by
     and between  National Auto Finance Company L.P., Auto Credit  Clearinghouse
     L.P. and National Auto Finance Corporation.(1)

10.16-2 Second Amendment to Management  Agreement,  dated as of January 1, 1997,
     by and among  National  Auto  Finance  Corporation,  National  Auto Finance
     Company,  Inc., National Auto Finance Company,  L.P. and National Financial
     Companies LLC.(5)*

10.17Services Agreement,  dated as of December 29, 1994, by and between National
     Auto Finance Corporation and National Financial Corporation.(1)

10.17-1 First Amendment to Services  Agreement,  dated as of January 1, 1996, by
     and between  National  Auto  Finance  Corporation  and  National  Financial
     Corporation.(1)



<PAGE>







10.17-2 Second Amendment to Services Agreement,  dated as of January 1, 1997, by
     and between  National  Auto  Finance  Corporation,  National  Auto  Finance
     Company, Inc. and National Financial Companies LLC.(5)*

10.18Pooling and Servicing Agreement,  dated as of October 1, 1995, by and among
     National Financial Auto Funding Trust, as Transferor, National Auto Finance
     Company  L.P.,  as Master  Servicer,  and Harris Trust and Savings Bank, as
     Trustee.(1)

10.19Assignment  Agreement,  dated as of October 1, 1995,  between Bankers Trust
     Company, as Trustee, and National Financial Auto Funding Trust.(1)

10.20Transfer  Agreement  No. 1, dated as of October 1, 1995,  between  National
     Financial Auto Funding Trust and Harris Trust and Savings Bank.(1)

10.21Insurance and  Indemnity  Agreement,  dated as of November 21, 1995,  among
     Financial Security  Assurance,  Inc., National Financial Auto Funding Trust
     and National Auto Finance Company L.P.(1)

10.22Indemnification  Agreement,  dated as of November 21, 1995, among Financial
     Security  Assurance Inc.,  National  Financial Auto Funding Trust and First
     Union Capital Markets Corp.(1)

10.23Master  Spread  Account  Agreement,  dated as of November 21,  1995,  among
     National  Financial Auto Funding Trust,  Financial  Security Assurance Inc.
     and Harris Trust and Savings Bank, as Trustee and as Collateral Agent.(1)

10.24Financial Guaranty  Insurance Policy (Policy No.:  50522-N),  together with
     Endorsement  No. 1 thereto,  dated  November 13, 1996,  issued by Financial
     Security Assurance Inc. in favor of


<PAGE>








     Harris  Trust  and  Savings  Bank,  as  trustee  for  the  benefit  of  the
     Certificate Holders.(1)

10.25Custodial  Agreement,  dated as of November 21,  1995,  by and between Omni
     Financial  Services of America,  Inc.,  as  custodian,  and  National  Auto
     Finance Company L.P., as Master Servicer.(1)

10.26Amendment,  dated  as of  November  21,  1995,  to the  First  Amended  and
     Restated Trust  Agreement of NAFCO Funding  Trust,  dated as of December 8,
     1994,  among  National Auto Finance  Company L.P., as Depositor,  The Chase
     Manhattan Bank (USA), as Owner Trustee, and Gary L. Shapiro,  Edgar Otto A.
     and Andrew Stidd, as Co-Trustees.(1)

10.27 Form of Indemnification Agreement.(4)

10.28Assignment and Assumption  Agreement,  dated as of October 7, 1996, between
     National  Auto Finance  Company,  Inc. and  National  Auto Finance  Company
     L.P.(1)

10.29Pooling  and  Servicing  Agreement,  dated as of October 21,  1996,  by and
     among National  Financial Auto Funding Trust, as Transferor,  National Auto
     Finance  Company L.P.,  as Servicer,  and Harris Trust and Savings Bank, as
     Trustee.(2)

10.30Purchase and Contribution  Agreement,  dated as of October 21, 1996, by and
     between  National  Auto Finance  Company L.P. and National  Financial  Auto
     Funding Trust.(2)

10.31Assignment  Agreement,  dated as of October 21, 1996, between Bankers Trust
     Company and National Financial Auto Funding Trust II.(2)


<PAGE>








     

10.32Master  Spread  Account  Agreement,  dated as of November 13,  1996,  among
     National  Financial Auto Funding Trust,  Financial  Security Assurance Inc.
     and Harris Trust and Savings Bank, as Trustee and Collateral Agent.(2)

10.33Insurance and  Indemnity  Agreement,  dated as of November 13, 1996,  among
     Financial  Security  Assurance Inc.,  National Financial Auto Funding Trust
     and National Auto Finance Company L.P.(2)

10.34Sale  Agreement,  dated as of October 21,  1996,  by and  between  National
     Financial  Auto Funding  Trust and National  Financial  Auto Funding  Trust
     II.(2)

10.35Transfer  Agreement  No. 1, dated as of  November  13,  1996,  by  National
     Financial  Auto  Funding  Trust as  Transferor  to Harris Trust and Savings
     Bank, as Trustee,  pursuant to a Pooling and Servicing Agreement,  dated as
     of October 21, 1996.(2)

10.36Form of Financial  Guaranty  Insurance Policy issued by Financial  Security
     Assurance Inc.(2)

10.37Agreement,  dated as of June 16, 1997,  by and between CTC  Investments  II
     Limited and National Auto Finance Company, Inc.(5)*

10.37-1 First  Amendment to Lease  Agreement  dated June 16, 1997 by and between
     CTC  Investments II Limited and National Auto Finance  Company,  Inc. dated
     October 1, 1997.(5)*



<PAGE>








10.38Referral Agreement,  dated as of April 15, 1996, by and between First Union
     National Bank of North Carolina and Auto Credit Clearinghouse L.P.(4)

10.39Trust  Agreement,  dated as of July 21, 1997,  between  National  Financial
     Auto Funding Trust and Wilmington Trust Company, as trustee.(5)*

10.40Indenture,  dated as of June 29, 1997, by and between National Auto Finance
     1997-1 Trust and Harris Trust and Savings Bank as Trustee.(5)*

10.41Sale and  Servicing  Agreement,  dated as of June 29,  1997,  by and  among
     National Auto Finance  1997-1 Trust,  as Seller,  National  Financial  Auto
     Finance 1997-1 Trust, National Auto Finance Company, Inc. as Servicer,  and
     Harris  Trust and  Savings  Bank,  as Trust  Collateral  Agent and  Back-up
     Servicer.(5)*

10.42Financial Guaranty Insurance Policy,  dated as of July 23, 1997,  delivered
     by Financial Security Assurance, Inc.(5)*

10.43Purchase and  Contribution  Agreement,  dated June 29, 1997, by and between
     National Auto Finance  Company,  Inc. and National  Financial  Auto Funding
     Trust.(5)*

10.44Sale  Agreement,  dated  as of  June  29,  1997,  by and  between  National
     Financial  Auto  Funding  Trust  II and  National  Financial  Auto  Funding
     Trust.(5)*

10.45Indemnification  Agreement,  dated  as of  July  23,  1997,  by  and  among
     Financial Security Assurance Inc.,  National Finance Auto Funding Trust and
     First Union Capital Markets Corp.(5)*


<PAGE>








10.46Amendment No. 1 dated 1997, by and among  National  Financial  Auto Funding
     Trust, Financial Security Assurance Inc., Harris Trust and Savings Bank, as
     collateral agent, and National Auto Finance Company,  Inc. to Master Spread
     Account  Agreement  dated as of November 21, 1995 and Master Spread Account
     Agreement  dated as of  November  13,  1996,  in each case  among  National
     Financial Auto Funding Trust,  Financial Security Assurance Inc. and Harris
     Trust and Savings Bank, as trustee and as collateral agent.(5)*

10.47Amendment No. 1 dated October 1, 1997, among Financial  Security  Assurance
     Inc.,  National  Financial  Auto Funding  Trust and  National  Auto Finance
     Company, Inc. to Insurance and Indemnity Agreement dated as of November 21,
     1995 and Insurance and Indemnity Agreement dated as of November 13, 1996 in
     each case among Financial Security Assurance Inc.,  National Financial Auto
     Funding Trust and National Auto Finance Company, Inc.(5)*

10.48Amendment  to  First  Amended  and  Restated  Trust  Agreement  dated as of
     December 8, 1994 among  National Auto Finance  Company,  Inc., the Trustee,
     and the  Co-Trustees,  and Section 10.03 of the Trust Agreement dated as of
     December 8, 1995 among National Auto Finance Company, Inc., the Trustee and
     the  Co-Trustees,  made as of October 1, 1997 among  National  Auto Finance
     Company,  Inc., The Chase  Manhattan Bank Delaware,  as Trustee of National
     Financial  Auto Funding Trust II and National  Financial Auto Funding Trust
     II and the co-trustee of such trusts.(5)*

10.49Investment  Agreement  dated as of October 1, 1997 by and between  National
     Auto Finance Company, Inc. and FSA Portfolio Management, Inc.(5)*

10.50Revolving  Credit  Agreement  dated as of September 29, 1997 among National
     Auto Finance  Company,  Inc. and BankBoston,  N.A., for itself and as agent
     for the other lending institutions named therein.(5)*



<PAGE>








10.50-1 Amendment Agreement No. 1 to Revolving Credit Agreement dated October 1,
     1997 by and between  National Auto Finance  Company,  Inc. and  BankBoston,
     N.A. and the other lending institutions party thereto and BankBoston, N.A.,
     as agent for itself and other banking institutions.(5)*

10.50-2 Amendment  Agreement No. 2 to Revolving  Credit Agreement dated December
     19, 1997 by and between National Auto Finance Company, Inc. and BankBoston,
     N.A. and the other lending institutions party thereto and BankBoston, N.A.,
     as agent for itself and other banking institutions.(5)*

10.50-3 Amendment Agreement No. 3 to the Revolving Credit Agreement, dated March
     19, 1998, by and among National Auto Finance Company, Inc. BankBoston, N.A.
     and the other lending institutions party thereto.(5)*

10.50-4 Amendment Agreement No. 4 to the Revolving Credit Agreement, dated March
     27, 1998, by and among National Auto Finance Company, Inc. BankBoston, N.A.
     and the other lending institutions party thereto.(5)*

10.51Trademark  Collateral  Security and Pledge  Agreement dated as of September
     29, 1997, between National Auto Finance Company, Inc. and BankBoston, N.A.,
     for itself and other banking institutions.(5)*

10.52Pledge  Agreement  made as of September 29, 1997 by and among National Auto
     Finance Company,  Inc., National Chartered Auto Corporation and BankBoston,
     N.A.(5)*

10.53Note dated as of  September  29,  1997  payable by  National  Auto  Finance
     Company, Inc. to BankBoston, N.A., as agent.(5)*

10.54Lease Agreement dated October 1996, by and between CanPro  Investments Ltd.
     and National Auto Finance Company L.P.(5)*


<PAGE>








10.55Master Lease  Agreement  between  National Auto Finance  Company,  Inc. and
     Nova Corporation, dated September 1, 1995.(5)*

10.56Lease Agreement  dated November 8, 1996 by and between CanPro  Investments,
     Ltd. and National Auto Finance Corporation L.P.(5)*

10.57Lease  Agreement  dated April 8, 1996,  by and between  CanPro  Investments
     Ltd. and National Auto  Financial  Corporation  or its assignee Auto Credit
     Clearinghouse.(5)*

10.58Software  License,  Support and Usage  Agreement  dated as of February  14,
     1997 by and between BNI, Inc. and National Auto Finance Company L.P.(5)*

10.58-1 First Amendment to Software  License,  Support and Usage Agreement dated
     as of December 15, 1997 by and between BNI,  Inc. and National Auto Finance
     Company L.P.(5)*

10.59Software  Sublicense,  Support and Usage Agreement dated as of February 17,
     1997,  by and between  Pinnacle  Portfolio  Services LLC and National  Auto
     Finance Company, Inc.(5)*

10.60Consent and  Amendment,  dated as of September 25, 1997,  between  National
     Financial Auto Funding Trust,  National Auto Finance  Company,  Inc., First
     Union  National  Bank and  Bankers  Trust  Company,  as Trustee of National
     Financial Auto Receivables Master Trust.(5)*



<PAGE>








10.61Security  Agreement,  dated as of September 29, 1997, between National Auto
     Finance Company,  Inc. and BankBoston,  N.A., as agent for itself and other
     banking institutions.(5)*

10.62[Intentionally Omitted.]

10.63Amendment,  dated as of  September  25,  1997,  to  Pooling  and  Servicing
     Agreements,  dated as of October 1, 1995 and October 21,  1996,  each among
     National Financial Auto Funding Trust, National Auto Finance Company, Inc.,
     as successor to National Auto Finance  Company  L.P.,  and Harris Trust and
     Savings Bank, as trustee.(5)*

10.64Waiver letter of Financial  Assurance Inc., dated as of September 25, 1997,
     to National Auto Finance Company,  Inc. and National Financial Auto Funding
     Trust.(5)

10.65[Intentionally Omitted.]

10.66Insurance and Indemnity Agreement, among Financial Security Assurance Inc.,
     National Auto Finance 1997-1 Trust,  National  Financial Auto Funding Trust
     and National Auto Finance Company, Inc., dated as of July 23, 1997.(5)*

10.67Master Spread  Account  Agreement,  dated as July 23, 1997,  among National
     Financial Auto Funding Trust,  Financial Security Assurance Inc. and Harris
     Trust and Savings Bank, as Trustee and as Collateral Agent.(5)*

10.68Custodial  Agreement,  dated  as of July  23,  1997,  by and  between  Omni
     Financial  Services of America,  Inc.,  as  custodian,  and  National  Auto
     Finance Company, Inc., as servicer.(5)*


<PAGE>








10.69$1.5  million  Promissory  Note,  dated as of August 25,  1997,  payable by
     National Auto Finance Company, Inc. to First Union National Bank.(5)

10.70Security  Agreement,  dated as of August 25,  1997,  delivered  by National
     Auto Finance Company, Inc. to First Union National Bank.(5)*

10.71Loan  Agreement,  dated as of August 25, 1997,  by and between  First Union
     National Bank and National Auto Finance Company, Inc.(5)

10.72 Voting Agreement by and among The 1818 Mezzanine Fund, L.P., PC Investment
     Company,  Progressive  Investment  Company,  Inc. and National Auto Finance
     Company, L.P dated December 22, 1997.(5)

10.73 Restated Registration Rights Agreement, dated March 27, 1998, by and among
     National Auto Finance Company, Inc. and Certain Investors.(5)*

10.74 Junior Subordination  Agreement,   dated  as  of  March  27,  1998,  among
     BankBoston,  N.A., The 1818 Mezzanine  Fund,  L.P., PC Investment  Company,
     Manufacturers Life Insurance Company (U.S.A.),  Nova Financial Corporation,
     Nova Corporation,  The Structured Finance High Yield Fund, LLC and National
     Auto Finance Company, Inc.(5)*

10.75 Indenture, dated as of December 15,  1997,  by and between  National  Auto
     Finance 1998-1 Trust and Harris Trust and Savings Bank at Trustee.(5)*



<PAGE>







10.76Sale and Servicing  Agreement,  dated as of December 15, 1997, by and among
     National Auto Finance  1998-1 Trust,  as Seller,  National  Financial  Auto
     Finance 1998-1 Trust, National Auto Finance Company, Inc. as Servicer,  and
     Harris  Trust and  Savings  Bank,  as Trust  Collateral  Agent and  Back-up
     Servicer.(5)*

10.77 Insurance and  Indemnity  Agreement,  among Financial  Security  Assurance
     Inc.,  National Auto Finance 1998-1 Trust,  National Financial Auto Funding
     Trust and National  Auto  Finance  Company,  Inc.,  dated as of January 20,
     1998.(5)*

10.78 Master Spread Account Agreement, dated as January 20, 1998, among National
     Financial Auto Funding Trust,  Financial Security Assurance Inc. and Harris
     Trust and Savings Bank, as Trustee and as Collateral Agent.(5)*

10.79 Custodial  Agreement,  dated as of January 20, 1998,  by and between  Omni
     Financial  Services of America,  Inc.,  as  custodian,  and  National  Auto
     Finance Company, Inc., as servicer.(5)*

10.80 Sale  Agreement,  dated as of December  15, 1997, by and between  National
     Financial  Auto  Funding  Trust  Il and  National  Financial  Auto  Funding
     Trust.(5)*

10.81 Trust Agreement, dated as of December 15, 1997, between National Financial
     Auto Funding Trust and Wilmington Trust Company.(5)*

10.82 Purchase and Contribution  Agreement,  dated  December  15,  1997,  by and
     between  National Auto Finance  Company,  Inc. and National  Financial Auto
     Funding Trust.(5)*

10.83 Assignment Agreement, dated as of December 15, 1997, between Bankers Trust
     Company and National Financial Auto Funding Trust II.(5)*


<PAGE>








     

10.84 Indemnification  Agreement, dated as of  January  20,  1998,  by and among
     Financial  Security  Assurance Inc.,  National Financial Auto Funding Trust
     and First Union Capital Markets Corp.(5)*

10.85 Amendment, dated as of January 20, 1998, by and among  National  Financial
     Auto Funding Trust,  Financial  Security  Assurance Inc.,  Harris Trust and
     Savings Bank, as collateral agent, and National Auto Finance Company,  Inc.
     to Master Spread Account  Agreement  dated as of November 21, 1995,  Master
     Spread Account  Agreement  dated as of November 13, 1996, and Master Spread
     Account  Agreement  dated as of July 23,  1997 in each case among  National
     Financial Auto Funding Trust,  Financial Security Assurance Inc. and Harris
     Trust and Savings Bank, as trustee and as collateral agent.(5)*

10.86 Referral Agreement,  dated as of February  26,  1998,  by and between U.S.
     Bank,  N.A.  and Auto Credit  Clearinghouse,  a division  of National  Auto
     Finance Company, Inc.(5)*

11.1 Earnings Per Share.(5)




<PAGE>









23.1 Consent of KPMG Peat Marwick LLP.(5)

27.1 Financial Data Schedule.(5)

------------------
* Filed in the form executed.

(1)  Incorporated by reference to the Company's  Registration  Statement on Form
     S-1  (Registration No. 333-13667) as filed with the Securities and Exchange
     Commission on October 8, 1996.

(2)  Incorporated by reference to the Company's  Amendment No. 1 to Registration
     Statement  on Form S-1/A  (Registration  No.  333-13667)  as filed with the
     Securities and Exchange Commission on November 25, 1996.

(3)  Incorporated by reference to the Company's  Amendment No. 2 to Registration
     Statement  on Form S-1/A  (Registration  No.  333-13667)  as filed with the
     Securities and Exchange Commission on January 9, 1997.

(4)  Incorporated by reference to the Company's  Amendment No. 3 to Registration
     Statement  on Form S-1/A  (Registration  No.  333-13667)  as filed with the
     Securities and Exchange Commission on January 28, 1997.

(5)  Filed herewith.

   Reports on Form 8-K

     On November 26, 1997,  the Company filed a Form 8-K  announcing its revised
third quarter and nine month  earnings  release for the periods ended  September
30, 1997.

     On December  22, 1997,  the Company  filed a Form 8-K  announcing:  (1) the
private  placement  of $10  million in common  stock and $40  million  principal
amount of Senior Subordinated Notes with detachable  warrants;  and (2) that the
Company  reset the exercise  price of all director,  officer and employee  stock
options to $5.25 per share.

     No other reports on Form 8-K were filed in the fourth quarter of 1997.


<PAGE>










                                  SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                    NATIONAL AUTO FINANCE COMPANY, INC.

April 30, 1998                      By:  /s/ Keith B. Stein
                                         ---------------------------------------
                                    Name:  Keith B. Stein
                                    Title:  Vice Chairman, Chief Financial
                                             Officer and Treasurer

   Pursuant to the  requirements  of the Securities  Exchange Act of 1934,  this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.


/s/ Gary L. Shapiro      Chief Executive Officer             April 30, 1998
Gary L. Shapiro          and Chairman of the Board
                         (principal executive officer)

/s/ Keith B. Stein       Vice Chairman, Chief Financial      April 30, 1998
Keith B. Stein           Officer, Treasurer and Director
                         (principal financial officer)

/s/ Kevin G. Adams       Senior Vice President, Finance      April 30, 1998
Kevin G. Adams           (principal accounting officer)


/s/ Joseph P. Donlan     Director                            April 30, 1998
Joseph P. Donlan


/s/ Stephen L. Gurba     Director                            April 30, 1998
Stephen L. Gurba


/s/ Peter Offermann      Director                            April 30, 1998
Peter Offermann


/s/ Morgan M. Schuessler Director                            April 30, 1998
Morgan M. Schuessler


/s/ Roy E. Tipton        Director                            April 30, 1998
Roy E. Tipton


/s/ David W. Young       Director                            April 30, 1998
David W. Young



<PAGE>
                                 EXHIBIT INDEX

   Exhibits

Number      Description                   Method of Filing
------      -----------                   ----------------

3.1  Certificate of Incorporation of the Company.(1)

3.1-1 Certificate  of the  Designations,  Preferences and Rights of the Series A
     Preferred Stock of the Company.(3)

3.2  By-laws of the Company.(1)

4.1  Certificate of Common Stock.(4)

4.2-1Promissory Note,  dated October 31, 1994,  payable by National Auto Finance
     Company L.P. to the order of Gary L. Shapiro.(1)

4.2-1Amended and Restated  Promissory Note, dated as of January 3, 1997, payable
     by National Auto Finance L.P. to the order of Gary L. Shapiro.(3)

4.3  Promissory  Note,  dated October 6, 1994,  payable by National Auto Finance
     Company L.P. to the order of Edgar A. Otto.(1)

4.3-1Amended and Restated  Promissory Note, dated as of January 3, 1997, payable
     by National Auto Finance Company L.P. to the order of Edgar A. Otto.(3)


<PAGE>









4.4  Promissory Note,  dated November 8, 1994,  payable by National Auto Finance
     Company L.P. to the order of Stephen L. Gurba.(1)

4.4-1Amended and Restated  Promissory Note, dated as of January 3, 1997, payable
     by national Auto Finance Company L.P. to the order of Stephen L. Gurba.(3)

4.5  Promissory  Note,  dated March 27, 1995,  payable by National  Auto Finance
     Company L.P. to the order of Nova Financial Corporation.(1)

4.5-1Amended and Restated  Promissory Note, dated as of January 3, 1997, payable
     by  National  Auto  Finance  Company  L.P.  to the order of Nova  Financial
     Corporation.(3)

4.6  Promissory  Note,  dated May 1, 1995,  payable  by  National  Auto  Finance
     Company L.P. to the order of Nova Corporation.(1)

4.6-1Amended and Restated  Promissory Note, dated as of January 3, 1997, payable
     by National Auto Finance Company L.P. to the order of Nova Corporation.(3)

4.7  Securities Purchase Agreement (the "Securities  Purchase Agreement") by and
     among National Auto Finance  Company,  Inc., The 1818 Mezzanine Fund, L.P.,
     PC  Investment  Company,   Progressive   Investment   Company,   Inc.,  and
     Manufacturers Life Insurance Company (U.S.A.) dated December 22, 1997.(5)*

4.7-1Waiver and  Amendment No. 1 to the  Securities  Purchase  Agreement,  dated
     March 27, 1998, by and among National Auto Finance Company,  Inc., The 1818
     Mezzanine  Fund,  L.P.,  PC  Investment  Company,   Progressive  Investment
     Company, Inc. and Manufacturers Life Insurance Company.(5)*



<PAGE>








4.8  Form  of  Senior  Subordinated  Promissory  Note  issued  pursuant  to  the
     Securities Purchase Agreement.(5)*

4.9  Form of Warrant to Purchase Shares of Common Stock of National Auto Finance
     Company, Inc. issued pursuant to the Securities Purchase Agreement.(5)*

4.10 Agreement,  dated March 27,  1998,  by and between  National  Auto  Finance
     Company, Inc. and The Structured Finance High Yield Fund, LLC.(5)*

4.11 Senior  Subordinated  Promissory  Note,  dated March 27, 1998,  executed by
     National Auto Finance Company, Inc. in favor of The Structured Finance High
     Yield Fund, LLC, in the amount of $20,000,000.00.(5)*

10.1 Warrant,  issued March 27, 1998, executed by National Auto Finance Company,
     Inc.(5)*

10.1 Second  Amended and Restated  Agreement of Limited  Partnership  of NatAuto
     Finance Company L.P.,  dated as of September 1, 1995, by and among National
     Auto Finance  Corporation,  The S  Associates  Limited  Partnership,  The O
     Associates  Limited  Partnership,  Stephen L. Gurba,  Craig Schnee,  Roy E.
     Tipton,  Blane H. MacDonald,  Michael B. Colley,  Irwin I. Kent, William G.
     Magro,  Kevin G.  Adams,  Kamala R.  Chapman,  Keith B.  Stein,  Colleen S.
     McMillen,  Richard H. Steffer, Tim Rooney, Lynn Dunham-Sirota and IronBrand
     Capital, LLC.(1)

10.1-1First  Amendment  to Second  Amended and Restated  Partnership  Agreement,
     dated December 1, 1996.(3)



<PAGE>








10.2 1996 Share Incentive Plan.(3)

10.3 401(k) Plan.(1)

10.4 Employment  Agreement,  dated as of July 1,  1996,  between  National  Auto
     Finance Company, Inc. and William G. Magro.(3)

10.4-1 First  Amendment  to  Employment  Agreement,  dated  as of May 27,  1997,
     between National Auto Finance Company, Inc. and William G. Magro.(5)

10.5 Employment Agreement, dated as of September 16, 1995, between National Auto
     Finance Company, Inc. and Roy E. Tipton.(3)

10.5-1 First Amendment to Employment  Agreement,  Dated as of December 16, 1997,
     between National Auto Finance Company, Inc. and Roy E. Tipton.(5)

10.6 Employment  Agreement,  dated as of October 19, 1995, between National Auto
     Finance Company, Inc. and Blane H. McDonald.(3)

10.7 Employment Agreement,  dated as of December 31, 1996, between National Auto
     Finance Company, Inc. and Stephen R. Stack.(3)

10.8 Receivables  Purchase  Agreement,  dated as of  December  8,  1994,  by and
     between  National Auto Finance  Company L.P., as Seller,  and NAFCO Funding
     Trust, as Purchaser.(1)



<PAGE>








10.9 Promissory Note, dated December 8, 1994,  payable by NAFCO Funding Trust to
     the order of National Auto Finance Company L.P.(1)

10.10NAFCO Auto Receivables Master Trust Pooling and  Administration  Agreement,
     dated as of December 8, 1994,  among NAFCO Funding  Trust,  as  Transferor,
     National Auto Finance Company L.P., as the Administrator, and Bankers Trust
     Company, as Trustee.(1)

10.10-1  Consent  and  Amendment,  dated  as of  July 2,  1996,  to  NAFCO  Auto
     Receivables Master Trust Pooling and Administration Agreement,  dated as of
     December 8, 1994,  among NAFCO Funding Trust, as Transferor,  National Auto
     Finance Company L.P., as the Administrator,  and Bankers Trust Company,  as
     Trustee.(5)*

10.11Series  1994-R,  Class B  Supplement,  dated as of December 8, 1994, to the
     Pooling and Administration  Agreement,  dated as of December 8, 1994, among
     NAFCO Funding Trust, as Transferor,  National Auto Finance Company L.P., as
     the Administrator, and Bankers Trust Company, as Trustee.(1)

10.12Trust  Agreement,  dated as of  October  5,  1994,  between  National  Auto
     Finance Corporation and Bankers Trust.(1)

10.13First Amendment and Restated Trust Agreement of NAFCO Funding Trust,  dated
     as of December 8, 1994,  between  National  Auto Finance  Company  L.P., as
     Depositor,  The Chase  Manhattan  Bank (USA),  as Owner Trustee and Gary L.
     Shapiro and Edgar A. Otto, as Co-Trustees.(1)

10.14Amended and Restated Servicing Agreement,  dated as of December 5, 1994, by
     and between World Omni Financial  Corp.  and National Auto Finance  Company
     L.P.(1)


<PAGE>








10.14-1  Amendment  to Amended and  Restated  Servicing  Agreement,  dated as of
     September 6, 1995,  by and among World Omni  Financial  Corp.  and National
     Auto Finance Company L.P.(5)*

10.14-2 Second Amendment to Amended and Restated Servicing  Agreement,  dated as
     of June 24, 1997, by and between Omni Financial Services of America,  Inc.,
     as  assignee of World Omni  Financial  Corp.,  and  National  Auto  Finance
     Company, Inc., as assignee of National Auto Finance Company L.P.(5)*

10.14-3 Third Amendment to the Amended and Restated Servicing  Agreement,  dated
     as of  September  12,  1997,  by and  between  Omni  Financial  Services of
     America, Inc. and National Auto Finance Company, Inc.(5)*

10.14-4 Fourth Amendment to the Amended and Restated Servicing Agreement,  dated
     as of October 12, 1997, by and between Omni Financial  Services of America,
     Inc.(5)*

10.14-5 Supplement to the Amended and Restated Servicing Agreement,  dated as of
     December  5, 1994,  as amended  as of October 1, 1995,  between  World Omni
     Financial Corp.  ("WOFC"),  as Servicer,  and National Auto Finance Company
     L.P., dated as of November 21, 1995 by and between Omni Financial  Services
     of America, Inc., as assignee of WOFC ("Servicer") and NAFCO.(1)

10.14-6 Supplement to the Amended and Restated Servicing Agreement,  dated as of
     December  5, 1994,  as amended  as of October 1, 1995,  between  World Omni
     Financial  Corp.  (WOFC) and National  Auto Finance  Company L.P.  (NAFCO),
     dated as of November  13, 1996 by and between  Omni  Financial  Services of
     America, Inc., as assignee of WOFC, and NAFCO.(2)

10.14-7  Supplement  to Amended and Restated  Servicing  Agreement,  December 5,
     1994,  as amended as of October 1, 1995 and November 13, 1996,  dated as of
     July 23, 1997, by and between Omni Financial Services of America,  Inc. and
     National Auto Finance Company, Inc.(5)*



<PAGE>








10.14-8  Supplement  to Amended and Restated  Servicing  Agreement,  dated as of
     December 5, 1994, as amended as of October 1, 1995,  June 24, 1997 and July
     21, 1997 and supplemented as of November 21, 1995,  November 13, 1996, July
     12, 1997 and September 19, 1997, by and between Omni Financial  Services of
     America, Inc. and National Auto Finance Company, Inc.(5)*

10.15Certificate  Purchase  Agreement,  dated as of December 8, 1994, among NAFI
     Funding Trust, National Auto Finance Company L.P., as Initial Administrator
     and First Union National Bank of North Carolina.(1)

10.16Management  Agreement,  dated  as of  December  29,  1994,  by and  between
     National   Auto   Finance   Company   L.P.   and   National   Auto  Finance
     Corporation.(1)

10.16-1 First Amendment of Management Agreement, dated as of January 1, 1996, by
     and between  National Auto Finance Company L.P., Auto Credit  Clearinghouse
     L.P. and National Auto Finance Corporation.(1)

10.16-2 Second Amendment to Management  Agreement,  dated as of January 1, 1997,
     by and among  National  Auto  Finance  Corporation,  National  Auto Finance
     Company,  Inc., National Auto Finance Company,  L.P. and National Financial
     Companies LLC.(5)*

10.17Services Agreement,  dated as of December 29, 1994, by and between National
     Auto Finance Corporation and National Financial Corporation.(1)

10.17-1 First Amendment to Services  Agreement,  dated as of January 1, 1996, by
     and between  National  Auto  Finance  Corporation  and  National  Financial
     Corporation.(1)



<PAGE>







10.17-2 Second Amendment to Services Agreement,  dated as of January 1, 1997, by
     and between  National  Auto  Finance  Corporation,  National  Auto  Finance
     Company, Inc. and National Financial Companies LLC.(5)*

10.18Pooling and Servicing Agreement,  dated as of October 1, 1995, by and among
     National Financial Auto Funding Trust, as Transferor, National Auto Finance
     Company  L.P.,  as Master  Servicer,  and Harris Trust and Savings Bank, as
     Trustee.(1)

10.19Assignment  Agreement,  dated as of October 1, 1995,  between Bankers Trust
     Company, as Trustee, and National Financial Auto Funding Trust.(1)

10.20Transfer  Agreement  No. 1, dated as of October 1, 1995,  between  National
     Financial Auto Funding Trust and Harris Trust and Savings Bank.(1)

10.21Insurance and  Indemnity  Agreement,  dated as of November 21, 1995,  among
     Financial Security  Assurance,  Inc., National Financial Auto Funding Trust
     and National Auto Finance Company L.P.(1)

10.22Indemnification  Agreement,  dated as of November 21, 1995, among Financial
     Security  Assurance Inc.,  National  Financial Auto Funding Trust and First
     Union Capital Markets Corp.(1)

10.23Master  Spread  Account  Agreement,  dated as of November 21,  1995,  among
     National  Financial Auto Funding Trust,  Financial  Security Assurance Inc.
     and Harris Trust and Savings Bank, as Trustee and as Collateral Agent.(1)

10.24Financial Guaranty  Insurance Policy (Policy No.:  50522-N),  together with
     Endorsement  No. 1 thereto,  dated  November 13, 1996,  issued by Financial
     Security Assurance Inc. in favor of


<PAGE>








     Harris  Trust  and  Savings  Bank,  as  trustee  for  the  benefit  of  the
     Certificate Holders.(1)

10.25Custodial  Agreement,  dated as of November 21,  1995,  by and between Omni
     Financial  Services of America,  Inc.,  as  custodian,  and  National  Auto
     Finance Company L.P., as Master Servicer.(1)

10.26Amendment,  dated  as of  November  21,  1995,  to the  First  Amended  and
     Restated Trust  Agreement of NAFCO Funding  Trust,  dated as of December 8,
     1994,  among  National Auto Finance  Company L.P., as Depositor,  The Chase
     Manhattan Bank (USA), as Owner Trustee, and Gary L. Shapiro,  Edgar Otto A.
     and Andrew Stidd, as Co-Trustees.(1)

10.27 Form of Indemnification Agreement.(4)

10.28Assignment and Assumption  Agreement,  dated as of October 7, 1996, between
     National  Auto Finance  Company,  Inc. and  National  Auto Finance  Company
     L.P.(1)

10.29Pooling  and  Servicing  Agreement,  dated as of October 21,  1996,  by and
     among National  Financial Auto Funding Trust, as Transferor,  National Auto
     Finance  Company L.P.,  as Servicer,  and Harris Trust and Savings Bank, as
     Trustee.(2)

10.30Purchase and Contribution  Agreement,  dated as of October 21, 1996, by and
     between  National  Auto Finance  Company L.P. and National  Financial  Auto
     Funding Trust.(2)

10.31Assignment  Agreement,  dated as of October 21, 1996, between Bankers Trust
     Company and National Financial Auto Funding Trust II.(2)


<PAGE>








     

10.32Master  Spread  Account  Agreement,  dated as of November 13,  1996,  among
     National  Financial Auto Funding Trust,  Financial  Security Assurance Inc.
     and Harris Trust and Savings Bank, as Trustee and Collateral Agent.(2)

10.33Insurance and  Indemnity  Agreement,  dated as of November 13, 1996,  among
     Financial  Security  Assurance Inc.,  National Financial Auto Funding Trust
     and National Auto Finance Company L.P.(2)

10.34Sale  Agreement,  dated as of October 21,  1996,  by and  between  National
     Financial  Auto Funding  Trust and National  Financial  Auto Funding  Trust
     II.(2)

10.35Transfer  Agreement  No. 1, dated as of  November  13,  1996,  by  National
     Financial  Auto  Funding  Trust as  Transferor  to Harris Trust and Savings
     Bank, as Trustee,  pursuant to a Pooling and Servicing Agreement,  dated as
     of October 21, 1996.(2)

10.36Form of Financial  Guaranty  Insurance Policy issued by Financial  Security
     Assurance Inc.(2)

10.37Agreement,  dated as of June 16, 1997,  by and between CTC  Investments  II
     Limited and National Auto Finance Company, Inc.(5)*

10.37-1 First  Amendment to Lease  Agreement  dated June 16, 1997 by and between
     CTC  Investments II Limited and National Auto Finance  Company,  Inc. dated
     October 1, 1997.(5)*



<PAGE>








10.38Referral Agreement,  dated as of April 15, 1996, by and between First Union
     National Bank of North Carolina and Auto Credit Clearinghouse L.P.(4)

10.39Trust  Agreement,  dated as of July 21, 1997,  between  National  Financial
     Auto Funding Trust and Wilmington Trust Company, as trustee.(5)*

10.40Indenture,  dated as of June 29, 1997, by and between National Auto Finance
     1997-1 Trust and Harris Trust and Savings Bank as Trustee.(5)*

10.41Sale and  Servicing  Agreement,  dated as of June 29,  1997,  by and  among
     National Auto Finance  1997-1 Trust,  as Seller,  National  Financial  Auto
     Finance 1997-1 Trust, National Auto Finance Company, Inc. as Servicer,  and
     Harris  Trust and  Savings  Bank,  as Trust  Collateral  Agent and  Back-up
     Servicer.(5)*

10.42Financial Guaranty Insurance Policy,  dated as of July 23, 1997,  delivered
     by Financial Security Assurance, Inc.(5)*

10.43Purchase and  Contribution  Agreement,  dated June 29, 1997, by and between
     National Auto Finance  Company,  Inc. and National  Financial  Auto Funding
     Trust.(5)*

10.44Sale  Agreement,  dated  as of  June  29,  1997,  by and  between  National
     Financial  Auto  Funding  Trust  II and  National  Financial  Auto  Funding
     Trust.(5)*

10.45Indemnification  Agreement,  dated  as of  July  23,  1997,  by  and  among
     Financial Security Assurance Inc.,  National Finance Auto Funding Trust and
     First Union Capital Markets Corp.(5)*


<PAGE>








10.46Amendment No. 1 dated 1997, by and among  National  Financial  Auto Funding
     Trust, Financial Security Assurance Inc., Harris Trust and Savings Bank, as
     collateral agent, and National Auto Finance Company,  Inc. to Master Spread
     Account  Agreement  dated as of November 21, 1995 and Master Spread Account
     Agreement  dated as of  November  13,  1996,  in each case  among  National
     Financial Auto Funding Trust,  Financial Security Assurance Inc. and Harris
     Trust and Savings Bank, as trustee and as collateral agent.(5)*

10.47Amendment No. 1 dated October 1, 1997, among Financial  Security  Assurance
     Inc.,  National  Financial  Auto Funding  Trust and  National  Auto Finance
     Company, Inc. to Insurance and Indemnity Agreement dated as of November 21,
     1995 and Insurance and Indemnity Agreement dated as of November 13, 1996 in
     each case among Financial Security Assurance Inc.,  National Financial Auto
     Funding Trust and National Auto Finance Company, Inc.(5)*

10.48Amendment  to  First  Amended  and  Restated  Trust  Agreement  dated as of
     December 8, 1994 among  National Auto Finance  Company,  Inc., the Trustee,
     and the  Co-Trustees,  and Section 10.03 of the Trust Agreement dated as of
     December 8, 1995 among National Auto Finance Company, Inc., the Trustee and
     the  Co-Trustees,  made as of October 1, 1997 among  National  Auto Finance
     Company,  Inc., The Chase  Manhattan Bank Delaware,  as Trustee of National
     Financial  Auto Funding Trust II and National  Financial Auto Funding Trust
     II and the co-trustee of such trusts.(5)*

10.49Investment  Agreement  dated as of October 1, 1997 by and between  National
     Auto Finance Company, Inc. and FSA Portfolio Management, Inc.(5)*

10.50Revolving  Credit  Agreement  dated as of September 29, 1997 among National
     Auto Finance  Company,  Inc. and BankBoston,  N.A., for itself and as agent
     for the other lending institutions named therein.(5)*



<PAGE>








10.50-1 Amendment Agreement No. 1 to Revolving Credit Agreement dated October 1,
     1997 by and between  National Auto Finance  Company,  Inc. and  BankBoston,
     N.A. and the other lending institutions party thereto and BankBoston, N.A.,
     as agent for itself and other banking institutions.(5)*

10.50-2 Amendment  Agreement No. 2 to Revolving  Credit Agreement dated December
     19, 1997 by and between National Auto Finance Company, Inc. and BankBoston,
     N.A. and the other lending institutions party thereto and BankBoston, N.A.,
     as agent for itself and other banking institutions.(5)*

10.50-3 Amendment Agreement No. 3 to the Revolving Credit Agreement, dated March
     19, 1998, by and among National Auto Finance Company, Inc. BankBoston, N.A.
     and the other lending institutions party thereto.(5)*

10.50-4 Amendment Agreement No. 4 to the Revolving Credit Agreement, dated March
     27, 1998, by and among National Auto Finance Company, Inc. BankBoston, N.A.
     and the other lending institutions party thereto.(5)*

10.51Trademark  Collateral  Security and Pledge  Agreement dated as of September
     29, 1997, between National Auto Finance Company, Inc. and BankBoston, N.A.,
     for itself and other banking institutions.(5)*

10.52Pledge  Agreement  made as of September 29, 1997 by and among National Auto
     Finance Company,  Inc., National Chartered Auto Corporation and BankBoston,
     N.A.(5)*

10.53Note dated as of  September  29,  1997  payable by  National  Auto  Finance
     Company, Inc. to BankBoston, N.A., as agent.(5)*

10.54Lease Agreement dated October 1996, by and between CanPro  Investments Ltd.
     and National Auto Finance Company L.P.(5)*


<PAGE>








10.55Master Lease  Agreement  between  National Auto Finance  Company,  Inc. and
     Nova Corporation, dated September 1, 1995.(5)*

10.56Lease Agreement  dated November 8, 1996 by and between CanPro  Investments,
     Ltd. and National Auto Finance Corporation L.P.(5)*

10.57Lease  Agreement  dated April 8, 1996,  by and between  CanPro  Investments
     Ltd. and National Auto  Financial  Corporation  or its assignee Auto Credit
     Clearinghouse.(5)*

10.58Software  License,  Support and Usage  Agreement  dated as of February  14,
     1997 by and between BNI, Inc. and National Auto Finance Company L.P.(5)*

10.58-1 First Amendment to Software  License,  Support and Usage Agreement dated
     as of December 15, 1997 by and between BNI,  Inc. and National Auto Finance
     Company L.P.(5)*

10.59Software  Sublicense,  Support and Usage Agreement dated as of February 17,
     1997,  by and between  Pinnacle  Portfolio  Services LLC and National  Auto
     Finance Company, Inc.(5)*

10.60Consent and  Amendment,  dated as of September 25, 1997,  between  National
     Financial Auto Funding Trust,  National Auto Finance  Company,  Inc., First
     Union  National  Bank and  Bankers  Trust  Company,  as Trustee of National
     Financial Auto Receivables Master Trust.(5)*



<PAGE>








10.61Security  Agreement,  dated as of September 29, 1997, between National Auto
     Finance Company,  Inc. and BankBoston,  N.A., as agent for itself and other
     banking institutions.(5)*

10.62[Intentionally Omitted.]

10.63Amendment,  dated as of  September  25,  1997,  to  Pooling  and  Servicing
     Agreements,  dated as of October 1, 1995 and October 21,  1996,  each among
     National Financial Auto Funding Trust, National Auto Finance Company, Inc.,
     as successor to National Auto Finance  Company  L.P.,  and Harris Trust and
     Savings Bank, as trustee.(5)*

10.64Waiver letter of Financial  Assurance Inc., dated as of September 25, 1997,
     to National Auto Finance Company,  Inc. and National Financial Auto Funding
     Trust.(5)

10.65[Intentionally Omitted.]

10.66Insurance and Indemnity Agreement, among Financial Security Assurance Inc.,
     National Auto Finance 1997-1 Trust,  National  Financial Auto Funding Trust
     and National Auto Finance Company, Inc., dated as of July 23, 1997.(5)*

10.67Master Spread  Account  Agreement,  dated as July 23, 1997,  among National
     Financial Auto Funding Trust,  Financial Security Assurance Inc. and Harris
     Trust and Savings Bank, as Trustee and as Collateral Agent.(5)*

10.68Custodial  Agreement,  dated  as of July  23,  1997,  by and  between  Omni
     Financial  Services of America,  Inc.,  as  custodian,  and  National  Auto
     Finance Company, Inc., as servicer.(5)*


<PAGE>








10.69$1.5  million  Promissory  Note,  dated as of August 25,  1997,  payable by
     National Auto Finance Company, Inc. to First Union National Bank.(5)

10.70Security  Agreement,  dated as of August 25,  1997,  delivered  by National
     Auto Finance Company, Inc. to First Union National Bank.(5)*

10.71Loan  Agreement,  dated as of August 25, 1997,  by and between  First Union
     National Bank and National Auto Finance Company, Inc.(5)

10.72 Voting Agreement by and among The 1818 Mezzanine Fund, L.P., PC Investment
     Company,  Progressive  Investment  Company,  Inc. and National Auto Finance
     Company, L.P dated December 22, 1997.(5)

10.73 Restated Registration Rights Agreement, dated March 27, 1998, by and among
     National Auto Finance Company, Inc. and Certain Investors.(5)*

10.74 Junior Subordination  Agreement,   dated  as  of  March  27,  1998,  among
     BankBoston,  N.A., The 1818 Mezzanine  Fund,  L.P., PC Investment  Company,
     Manufacturers Life Insurance Company (U.S.A.),  Nova Financial Corporation,
     Nova Corporation,  The Structured Finance High Yield Fund, LLC and National
     Auto Finance Company, Inc.(5)*

10.75 Indenture, dated as of December 15,  1997,  by and between  National  Auto
     Finance 1998-1 Trust and Harris Trust and Savings Bank at Trustee.(5)*



<PAGE>







10.76Sale and Servicing  Agreement,  dated as of December 15, 1997, by and among
     National Auto Finance  1998-1 Trust,  as Seller,  National  Financial  Auto
     Finance 1998-1 Trust, National Auto Finance Company, Inc. as Servicer,  and
     Harris  Trust and  Savings  Bank,  as Trust  Collateral  Agent and  Back-up
     Servicer.(5)*

10.77 Insurance and  Indemnity  Agreement,  among Financial  Security  Assurance
     Inc.,  National Auto Finance 1998-1 Trust,  National Financial Auto Funding
     Trust and National  Auto  Finance  Company,  Inc.,  dated as of January 20,
     1998.(5)*

10.78 Master Spread Account Agreement, dated as January 20, 1998, among National
     Financial Auto Funding Trust,  Financial Security Assurance Inc. and Harris
     Trust and Savings Bank, as Trustee and as Collateral Agent.(5)*

10.79 Custodial  Agreement,  dated as of January 20, 1998,  by and between  Omni
     Financial  Services of America,  Inc.,  as  custodian,  and  National  Auto
     Finance Company, Inc., as servicer.(5)*

10.80 Sale  Agreement,  dated as of December  15, 1997, by and between  National
     Financial  Auto  Funding  Trust  Il and  National  Financial  Auto  Funding
     Trust.(5)*

10.81 Trust Agreement, dated as of December 15, 1997, between National Financial
     Auto Funding Trust and Wilmington Trust Company.(5)*

10.82 Purchase and Contribution  Agreement,  dated  December  15,  1997,  by and
     between  National Auto Finance  Company,  Inc. and National  Financial Auto
     Funding Trust.(5)*

10.83 Assignment Agreement, dated as of December 15, 1997, between Bankers Trust
     Company and National Financial Auto Funding Trust II.(5)*


<PAGE>








     

10.84 Indemnification  Agreement, dated as of  January  20,  1998,  by and among
     Financial  Security  Assurance Inc.,  National Financial Auto Funding Trust
     and First Union Capital Markets Corp.(5)*

10.85 Amendment, dated as of January 20, 1998, by and among  National  Financial
     Auto Funding Trust,  Financial  Security  Assurance Inc.,  Harris Trust and
     Savings Bank, as collateral agent, and National Auto Finance Company,  Inc.
     to Master Spread Account  Agreement  dated as of November 21, 1995,  Master
     Spread Account  Agreement  dated as of November 13, 1996, and Master Spread
     Account  Agreement  dated as of July 23,  1997 in each case among  National
     Financial Auto Funding Trust,  Financial Security Assurance Inc. and Harris
     Trust and Savings Bank, as trustee and as collateral agent.(5)*

10.86 Referral Agreement,  dated as of February  26,  1998,  by and between U.S.
     Bank,  N.A.  and Auto Credit  Clearinghouse,  a division  of National  Auto
     Finance Company, Inc.(5)*

11.1 Earnings Per Share.(5)




<PAGE>









23.1 Consent of KPMG Peat Marwick LLP.(5)

27.1 Financial Data Schedule.(5)

------------------
* Filed in the form executed.

(1)  Incorporated by reference to the Company's  Registration  Statement on Form
     S-1  (Registration No. 333-13667) as filed with the Securities and Exchange
     Commission on October 8, 1996.

(2)  Incorporated by reference to the Company's  Amendment No. 1 to Registration
     Statement  on Form S-1/A  (Registration  No.  333-13667)  as filed with the
     Securities and Exchange Commission on November 25, 1996.

(3)  Incorporated by reference to the Company's  Amendment No. 2 to Registration
     Statement  on Form S-1/A  (Registration  No.  333-13667)  as filed with the
     Securities and Exchange Commission on January 9, 1997.

(4)  Incorporated by reference to the Company's  Amendment No. 3 to Registration
     Statement  on Form S-1/A  (Registration  No.  333-13667)  as filed with the
     Securities and Exchange Commission on January 28, 1997.

(5)  Filed herewith.