SALE AND SERVICING

                                    AGREEMENT

                                      among

                       NATIONAL AUTO FINANCE 1998-1 TRUST,

                                     Issuer,

                     NATIONAL FINANCIAL AUTO FUNDING TRUST,

                                     Seller,

                      NATIONAL AUTO FINANCE COMPANY, INC.,

                                    Servicer

                                       and

                          HARRIS TRUST AND SAVINGS BANK

                   Trust Collateral Agent and Backup Servicer

                          Dated as of December 15, 1997






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                                TABLE OF CONTENTS


                                    ARTICLE I

                                   Definitions

SECTION 1.1.  Definitions...................................................1
SECTION 1.2.  Other Definitional Provisions................................23
SECTION 1.3.  Usage of Terms...............................................24
SECTION 1.4.  Certain References...........................................24
SECTION 1.5.  No Recourse..................................................24
SECTION 1.6.  Action by or Consent of Noteholders..........................24
SECTION 1.7.  Material Adverse Effect......................................25
SECTION 1.8.  Calculations as to Principal and Interest
              in Respect of Receivables....................................25

                                   ARTICLE II

                            Conveyance of Receivables

SECTION 2.1.  Conveyance of Initial Receivables............................25
SECTION 2.2.  Conveyance of Subsequent Receivables.........................27
SECTION 2.3.  Further Encumbrance of Trust Property........................30
SECTION 2.4.  Books and Records; Payments on Receivables...................30
SECTION 2.5.  Seller Repurchase of Receivables.............................31

                                   ARTICLE III

                                 The Receivables

SECTION 3.1.  Representations and Warranties of Seller.....................32
SECTION 3.2.  Repurchase upon Breach.......................................32
SECTION 3.3.  Custody of Receivables Files.................................33

                                   ARTICLE IV

                   Administration and Servicing of Receivables

SECTION 4.1.   Duties of the Servicer......................................33
SECTION 4.2.   Sub-Servicing Agreements between Servicer
               and the Sub-Servicers.......................................36
SECTION 4.3.   Obligations of the Servicer.................................37
SECTION 4.4.   No Contractual Relationship between a Sub-Servicer 
               and Trust Collateral Agent or Noteholders...................37



                                       i

<PAGE>

SECTION 4.5.   Assumption or Termination of Sub-Servicing
               Agreement by Trust Collateral Agent.........................37
SECTION 4.6.   Collection of Receivable Payments...........................38
SECTION 4.7.   Maintenance of Insurance....................................40
SECTION 4.8.   Realization upon Defaulted Receivables......................41
SECTION 4.9.   Total Servicing Fee; Payment of Certain
               Expenses by Servicer........................................41
SECTION 4.10.  [Reserved]..................................................42
SECTION 4.11.  Reports.....................................................42
SECTION 4.12.  Annual Statement as to Compliance, Notice
               of Servicer Termination Event...............................43
SECTION 4.13.  Annual Independent Accountants' Report......................43
SECTION 4.14.  Access to Certain Documentation and
               Information Regarding Receivables...........................44
SECTION 4.15.  Monthly Tape................................................44
SECTION 4.16.  Retention and Termination of Servicer.......................44
SECTION 4.17.  Custodial Arrangement.......................................44

                                    ARTICLE V

            Trust Accounts; Distributions; Statements to Noteholders

SECTION 5.1.   Establishment of Trust Accounts.............................45
SECTION 5.2.   Pre-Funding Period Reserve Account..........................49
SECTION 5.3.   Certain Reimbursements to the Servicer......................50
SECTION 5.4.   Application of Collections..................................50
SECTION 5.5.   Withdrawals from Series 1998-1 Spread Account...............51
SECTION 5.6.   Additional Deposits.........................................51
SECTION 5.7.   Distributions...............................................51
SECTION 5.8.   Note Distribution Account...................................54
SECTION 5.9.   Pre-Funding Account.........................................55
SECTION 5.10.  Statements to Noteholders...................................56
SECTION 5.11.  Optional Deposits by the Insurer............................56

                                   ARTICLE VI

                                 The Note Policy

SECTION 6.1.   Claims Under Note Policy....................................56
SECTION 6.2.   Preference Claims...........................................57
SECTION 6.3.   Surrender of Policy.........................................58
SECTION 6.4.   Spread Account..............................................58


                                       ii


<PAGE>

                                   ARTICLE VII

                                    RESERVED


                                  ARTICLE VIII

                                   The Seller

SECTION 8.1.   Representations, Warranties and Covenants of the Seller.....59
SECTION 8.2.   Corporate Existence.........................................61
SECTION 8.3.   Liability of Seller; Indemnities............................62
SECTION 8.4.   Merger or Consolidation of, or Assumption of the
               Obligations of, Seller......................................63
SECTION 8.5.   Limitation on Liability of Seller and Others................63
SECTION 8.6.   Seller May Own Notes........................................63

                                   ARTICLE IX

                                  The Servicer

SECTION 9.1.   Representations, Warranties and Covenants
               of the Servicer.............................................64
SECTION 9.2.   Liability of Servicer; Indemnities..........................66
SECTION 9.3.   Merger or Consolidation of, or Assumption of the
               Obligations of the Servicer or the Trust
               Collateral Agent............................................67
SECTION 9.4.   Limitation on Liability of Servicer, Trust
               Collateral Agent and Others.................................68
SECTION 9.5.   Delegation of Duties........................................70
SECTION 9.6.   Servicer Not to Resign......................................71

                                    ARTICLE X

                                     Default

SECTION 10.1.   Servicer Termination Event.................................71
SECTION 10.2.   Consequences of a Servicer Termination Event...............73
SECTION 10.3.   Additional Consequences of a Servicer Termination
                Event......................................................74
SECTION 10.4.   Appointment of Successor...................................74
SECTION 10.5.   [RESERVED].................................................72
SECTION 10.6.   Notification to Noteholders and Rating Agencies............76
SECTION 10.7.   Waiver of Past Defaults....................................76
SECTION 10.8.   Termination of Trust Collateral Agent......................76
SECTION 10.9.   Successor to Servicer......................................77




                                      iii

<PAGE>

                                   ARTICLE XI

                                   Termination

SECTION 11.1.   Optional Purchase of All Receivables.......................78

                                   ARTICLE XII

                      Administrative Duties of the Servicer

SECTION 12.1.   Administrative Duties......................................79
SECTION 12.2.   Records....................................................81
SECTION 12.3.   Additional Information to be Furnished to the Issuer.......81

                                  ARTICLE XIII

                            Miscellaneous Provisions

SECTION 13.1.   Amendment..................................................81
SECTION 13.2.   Protection of Title to Trust...............................83
SECTION 13.3.   Notices....................................................85
SECTION 13.4.   Assignment.................................................86
SECTION 13.5.   Limitations on Rights of Others............................86
SECTION 13.6.   Severability...............................................86
SECTION 13.7.   Separate Counterparts......................................86
SECTION 13.8.   Headings...................................................86
SECTION 13.9.   Governing Law..............................................86
SECTION 13.10.  Assignment to Trustee......................................87
SECTION 13.11.  Nonpetition Covenants......................................87
SECTION 13.12.  Limitation of Liability of Owner Trustee and Trustee.......87
SECTION 13.13.  Independence of the Servicer...............................88
SECTION 13.14.  No Joint Venture...........................................88
SECTION 13.14.  Insurer as Controlling Party...............................84



                                       iv

<PAGE>

     SALE AND SERVICING  AGREEMENT dated as of December 15, 1997, among NATIONAL
AUTO FINANCE 1998-1 TRUST, a Delaware  business trust (the  "Issuer"),  NATIONAL
FINANCIAL  AUTO FUNDING TRUST, a Delaware  business  trust (the  "Seller"),  and
NATIONAL AUTO FINANCE COMPANY,  INC., a Delaware  corporation (the  "Servicer"),
and HARRIS  TRUST AND SAVINGS  BANK,  an Illinois  banking  association,  in its
capacity as Trust Collateral Agent and Backup Servicer.

     WHEREAS the Issuer desires to purchase a portfolio of  receivables  arising
in connection with motor vehicle retail  installment sale contracts  acquired by
National Auto Finance Company, Inc. directly or indirectly through motor vehicle
dealers and motor vehicle finance companies;

     WHEREAS the Seller has acquired such  receivables  from National  Financial
Auto Funding Trust II and National Auto Finance Company,  Inc. and is willing to
sell such receivables to the Issuer;

     WHEREAS the Issuer  desires to acquire  additional  receivables  arising in
connection with motor vehicle retail  installment  sale contracts to be acquired
by National Auto Finance  Company,  Inc.  directly or  indirectly  through motor
vehicle dealers;

     WHEREAS the Seller has an agreement to purchase such additional receivables
from National Auto Finance Company, Inc. and is willing to sell such receivables
to the Issuer;

     WHEREAS the Servicer is willing to service all such receivables;

     NOW,  THEREFORE,  in consideration of the promises and the mutual covenants
herein contained, the parties hereto agree as follows:

                                   ARTICLE I

                                   Definitions

     SECTION 1.1.  Definitions.  Whenever used in this Agreement,  the following
words and phrases shall have the following meanings:

     "Accountants'  Report" means the report of a firm of nationally  recognized
independent accountants described in Section 4.13.

     "Actuarial  Method" means the method of allocating a fixed level payment on
an obligation  between principal and interest,  pursuant to which the portion of
such  payment that is allocated to interest is equal to the product of (a) 1/12,
(b) the  fixed  rate of  interest  on such  obligation  and (c) the  outstanding
principal balance of such obligation.

     "Addition  Notice"  means,  with  respect  to any  transfer  of  Subsequent
Receivables  to the Trust pursuant to Section 2.2 of this  Agreement,  notice of
the Seller's  election to transfer  Subsequent  Receivables  to the Trust,  such
notice to  designate  the related  Subsequent  Transfer  Date and the  aggregate


<PAGE>

Principal  Balance  of the  Subsequent  Receivables  to be  transferred  on such
Subsequent Transfer Date.

     "Affiliate"  means, with respect to any specified Person,  any other Person
controlling or controlled by or under common control with such specified Person.
For the  purposes of this  definition,  "control"  when used with respect to any
Person  means the power to direct the  management  and  policies of such Person,
directly or indirectly,  whether through the ownership of voting securities,  by
contract  or  otherwise;  and the  terms  "controlling"  and  "controlled"  have
meanings correlative to the foregoing.

     "Aggregate   Principal   Balance"  means,  with  respect  to  any  date  of
determination, the sum of the Principal Balances for all Receivables (other than
(i) any Receivable  that became a Liquidated  Receivable  during the related Due
Period and (ii) any  Receivable  that became a Purchased  Receivable  during the
related Due Period) as of the date of determination.

     "Agreement"  means this Sale and  Servicing  Agreement,  as the same may be
amended and supplemented from time to time in accordance with the terms hereof.

     "Amount  Financed"  means,  with  respect  to a  Receivable,  the  original
principal  balance of such  Receivable  reduced by the  portion of each  payment
received  thereon  before  the  applicable  Cut-off  Date that  would  represent
principal if such  payments  were  allocated to the principal of and interest on
such Receivable based on the amortization method provided in such Receivable.

     "Annual  Percentage  Rate"  or  "APR"  of a  Receivable  means  the  annual
percentage rate of finance charges or service charges,  as stated in the related
Contract.

     "Assignment Agreement" means the agreement,  dated as of December 15, 1997,
between  Bankers Trust  Company,  not in its  individual  capacity but solely as
Trustee of the National  Financial Auto  Receivables  Master Trust, and National
Financial  Auto Funding  Trust II, as the same may be amended,  supplemented  or
otherwise modified from time to time in accordance with the terms thereof.

     "Available  Amount" means, with respect to any Distribution Date, an amount
equal to the sum of (i) the amount on deposit in the Distribution Account on the
preceding  Distribution Date after giving effect to all withdrawals therefrom on
such preceding  Distribution Date, (ii) the amount, if any, to be transferred by
the Trust  Collateral  Agent to the  Distribution  Account from the  Pre-Funding
Period  Reserve  Account  and/or the  Pre-Funding  Account,  if any, as provided
herein,  (iii) the amount to be transferred by the Trust Collateral Agent to the
Distribution  Account  from the  Collection  Account on such  Distribution  Date
pursuant  to Section  5.1(c),  and (iv) any  amounts  paid by the Insurer to the
Trust  Collateral Agent pursuant to Section 5.11 hereof for distribution on such
Distribution Date.

     "Average  Default  Rate" means,  with respect to any  Reporting  Date,  the
arithmetic  average  of the  Default  Rates for each of the  three  Due  Periods
immediately preceding the Due Period in which such Reporting Date occurs.


<PAGE>

     "Average  Delinquency Ratio" means, with respect to any Reporting Date, the
arithmetic  average of the Delinquency  Ratios for each of the three Due Periods
immediately preceding the Due Period in which such Reporting Date occurs.

     "Average Extension Ratio" has the meaning specified in Section 4.6(a).

     "Average Net Loss Rate"  means,  with respect to any  Reporting  Date,  the
arithmetic  average  of the Net Loss  Rates for each of the  three  Due  Periods
immediately preceding the Due Period in which such Reporting Date occurs.

     "Backup  Servicer"  means,  Harris  Trust and Savings  Bank,  as the Backup
Servicer  hereunder,  including in its  capacity as Servicer,  in the event NAFI
resigns or is removed as Servicer.

     "Bankruptcy  Loss"  means,  with  respect  to a  Receivable,  if a court of
appropriate  jurisdiction in an insolvency proceeding shall have issued an order
reducing the amount owed on a Receivable or otherwise modifying or restructuring
the scheduled payments to be made on a Receivable, an amount equal to the excess
of the principal balance of such Receivable immediately prior to such order over
the principal  balance of such Receivable as so reduced or the net present value
(using as the discount rate the higher of the APR on such Receivable or the rate
of  interest,  if any,  specified  by the court in such order) of the  scheduled
payments as so modified or restructured.  A "Bankruptcy Loss" shall be deemed to
have occurred on the date of issuance of such order.

     "Base Servicing Fee" means, with respect to any Due Period, the fee payable
to the  Servicer for services  rendered  during such Due Period,  which shall be
equal to one-twelfth of the Servicing Fee Rate multiplied by the Pool Balance as
of the close of business on the last day of the preceding Due Period.

     "Business Day" means a day other than a Saturday,  a Sunday or other day on
which  commercial banks located in New York,  Illinois,  Delaware or Florida are
authorized or obligated to be closed.

     "Certificateholder" or "Certificateholders"  means a Person in whose name a
Trust Certificate is registered in the Certificate  Register maintained pursuant
to the Trust Agreement.

     "Code" shall mean the Internal  Revenue Code of 1986,  as amended from time
to time, and Treasury Regulations promulgated thereunder.

     "Closing Date" means January 20, 1998.

     "Collateral  Agent" means Harris Trust and Savings Bank, in its capacity as
Collateral Agent under the Spread Account Agreement.

      "Collection Account" means the account designated as such, established and
maintained pursuant to Section 5.1.


<PAGE>

     "Collection  Records"  means all  manually  prepared or computer  generated
records relating to collection  efforts or payment histories with respect to the
Receivables.

     "Computer  Tape"  means  the  computer  tapes  or  other  electronic  media
furnished  by the  Seller  to the  Issuer  and its  assigns  describing  certain
characteristics of the Initial Receivables as of the Initial Cut-off Date and of
the Subsequent Receivables as of the related Subsequent Cut-off Date.

     "Contract" means a motor vehicle retail installment sale contract.

     "Controlling  Party" means the Insurer, so long as no Insurer Default shall
have  occurred and be  continuing,  and, in the event the Insurer  Default shall
have occurred and be continuing,  the Trust  Collateral Agent for the benefit of
the Noteholders.

     "Conveyance  Agreements" means the Purchase  Agreement,  the Sale Agreement
and the Assignment Agreement.

     "Corporate  Trust Office" means (i) with respect to the Owner Trustee,  the
principal  corporate  trust  office of the Owner  Trustee,  which at the time of
execution of this  agreement is Rodney Square North,  1100 North Market  Street,
Wilmington, Delaware 19890- 0001, Attention: Corporate Trust Administration, and
(ii) with respect to the Trustee and the Trust  Collateral  Agent, the principal
corporate  trust office of the  Trustee,  which at the time of execution of this
agreement is 311 West Monroe Street, 12th Floor, Chicago, IL 60606.

     "Custodial  Agreement"  means  any  agreement  from  time to time in effect
between the Custodian named therein and the Trust Collateral  Agent, as the same
may be  amended,  supplemented  or  otherwise  modified  from  time  to  time in
accordance with the terms thereof, which Custodial Agreement and any amendments,
supplements  or  modifications  thereto shall be  acceptable to the  Controlling
Party  (the  Custodial  Agreement  which is  effective  on the  Closing  Date is
acceptable to the Insurer).

     "Custodian"  means any Person  named from time to time as  custodian of the
Receivable  Files in any  Custodial  Agreement and acting as agent for the Trust
Collateral Agent,  which Person must be acceptable to the Controlling Party (the
Custodian as of the Closing Date is  acceptable to the Insurer as of the Closing
Date).

     "Cut-off  Date" means the Initial  Cut-off Date or any  Subsequent  Cut-off
Date, as applicable.

     "Dealer" means a dealer who sold a Financed  Vehicle and who originated and
assigned  the  respective  Receivable  to NAFI or an  Originator  under a Dealer
Agreement.

     "Dealer  Agreement" means any agreement between NAFI or an Originator and a
Dealer  relating to the  acquisition of Receivables  from a Dealer by NAFI or an
Originator.

     "Dealer  Assignment"  means,  with  respect to a  Receivable,  the executed
assignment executed by a Dealer conveying such Receivable to an Originator.


<PAGE>


     "Dealer  Underwriting Guide" means either, (i) the underwriting  guidelines
used by or on behalf of NAFI in the  origination  and purchase of Receivables as
amended  from  time  to time or (ii)  the  underwriting  guidelines  used in the
origination  of  Receivables  as  reviewed  by NAFI  prior  to the  purchase  of
Receivables by NAFI.

     "Default  Rate" means,  with respect to any Due Period,  the product of (i)
twelve and (ii) the quotient,  expressed as a  percentage,  obtained by dividing
(a) the sum of (x) the aggregate  outstanding Principal Balance of all Defaulted
Receivables  which became Defaulted  Receivables  during such Due Period and (y)
the  aggregate  outstanding  Principal  Balance of all  Receivables  that became
Purchased  Receivables  during such Due Period and were 30 days or more past due
as of the  date  such  Receivables  were  retransferred  hereunder  by  (b)  the
arithmetic  average of the Pool Balance as of the end of such Due Period and the
Pool Balance as of the end of the preceding Due Period.

     "Defaulted  Receivable" means, with respect to any Due Period, a Receivable
with respect to which any of the following has occurred  during such Due Period:
(i) all or a part of any Scheduled  Payment is 90 days or more  delinquent as of
the end of such Due Period,  (ii) such Receivable is in default and the Servicer
(or Sub-Servicer) has in good faith determined that payments  thereunder are not
likely to be resumed,  or (iii) the Financed Vehicle that secures the Receivable
has been  repossessed  without  reinstatement of the Receivable on or before the
last day of such Due Period and any applicable redemption period has expired.

     "Deficiency Claim Amount" shall have the meaning set forth in Section 5.5.

     "Deficiency Claim Date" means,  with respect to any Distribution  Date, the
fourth Business Day immediately preceding such Distribution Date.

     "Deficiency Notice" shall have the meaning set forth in Section 5.5.

     "Delinquency  Rate" means,  with respect to any Due Period,  the  quotient,
expressed  as a  percentage,  obtained by dividing (a) the  aggregate  Principal
Balance of all  Receivables  with respect to which a Scheduled  Payment is 30 or
more days past due as of the end of such Due Period,  by (b) the Pool Balance as
of the end of such Due Period.

     "Delivery" when used with respect to Trust Account Property means:

     (a) with  respect to bankers'  acceptances,  commercial  paper,  negotiable
certificates  of deposit and other  obligations  that  constitute  "instruments"
within the  meaning of Section  9-105(1)(i)  of the UCC and are  susceptible  of
physical delivery, transfer thereof to the Trust Collateral Agent or its nominee
or custodian by physical  delivery to the Trust  Collateral Agent or its nominee
or custodian  endorsed to, or  registered  in the name of, the Trust  Collateral
Agent or its nominee or  custodian or endorsed in blank and such  additional  or
alternative  procedures  as may  hereafter  become  appropriate  to  effect  the
complete  transfer of ownership of any such Trust Account  Property to the Trust
Collateral  Agent free and clear of any adverse claims,  consistent with changes
in applicable law or regulations or the interpretation thereof;



<PAGE>

     (b)  with  respect  to a  certificated  security  (as  defined  in  Section
8-102(a)(4)  of the UCC)  transfer  thereof  (i) by  physical  delivery  of such
certificated  security  to the  Trust  Collateral  Agent,  provided  that if the
certificated  security  is in  registered  form,  it shall be  endorsed  to,  or
registered in the name of, the Trust  Collateral  Agent or endorsed in blank, or
(ii) by physical delivery thereof to a "securities  intermediary" (as defined in
Section  8-102(a)(14) of the UCC) acting on behalf of the Trust Collateral Agent
if the certificated security has been specially endorsed to the Trust Collateral
Agent by an effective endorsement; and such additional or alternative procedures
as may hereafter become appropriate to effect the complete transfer of ownership
of any such Trust Account  Property to the Trust Collateral Agent or its nominee
or custodian,  consistent  with changes in applicable  law or regulations or the
interpretation thereof;

     (c) with respect to any security issued by the U.S.  Treasury,  the Federal
Home Loan Mortgage  Corporation or by the Federal National Mortgage  Association
that is a book-entry  security held through the Federal  Reserve System pursuant
to Federal book-entry regulations,  the following procedures,  all in accordance
with applicable law, including applicable Federal regulations and Articles 8 and
9 of the UCC:  book-entry  registration  of such Trust  Account  Property  to an
appropriate  book-entry  account  maintained  with a Federal  Reserve  Bank by a
securities  intermediary  which is also a  "depository"  pursuant to  applicable
Federal  regulations and issuance by such  securities  intermediary of a deposit
advice or other written  confirmation  of such  book-entry  registration  to the
Trust Collateral Agent of the purchase by the securities  intermediary on behalf
of the Trust Collateral Agent of such book-entry securities;  the making by such
securities  intermediary  of entries in its books and records  identifying  such
book-entry  security held through the Federal Reserve System pursuant to Federal
book-entry regulations as belonging to the Trust Collateral Agent and indicating
that such securities  intermediary  holds such Trust Account  Property solely as
agent  for the  Trust  Collateral  Agent;  and such  additional  or  alternative
procedures as may hereafter  become  appropriate to effect complete  transfer of
ownership of any such Trust Account  Property to the Trust  Collateral  Agent or
its  nominee  or  custodian,  consistent  with  changes  in  applicable  law  or
regulations or the interpretation thereof; and

     (d)  with  respect  to any  item  of  Trust  Account  Property  that  is an
uncertificated  security  under Article 8 of the UCC and that is not governed by
clause (c) above,  (i) the Trust  Collateral  Agent or its agent  (other  than a
securities  intermediary)  becomes the registered  owner of such  uncertificated
security  or the  registered  owner  acknowledges  that it holds  for the  Trust
Collateral Agent; or (ii) the issuer of such uncertificated security agrees that
it will comply  with the  instructions  of the Trust  Collateral  Agent  without
further consent of the registered owner thereof.

     (e) in each case of  delivery  contemplated  herein,  the Trust  Collateral
Agent shall make appropriate  notations on its records, and shall cause the same
to be made on the records of its nominees,  indicating  that such securities are
held in trust pursuant to and as provided in this Agreement.

     (f) with  respect  to a  "security  entitlement"  (as  defined  in  Section
8-102(a)(17) of the UCC (i) of a securities  intermediary  (A) indicates by book
entry that a "financial  asset" (as defined in Section  8-102(a)(9)  of the UCC)


<PAGE>

has been  credited to the Trust  Collateral  Agent's  "securities  account"  (as
defined in Section  8-501(a) of the UCC), (B) receives a financial  asset (as so
defined) from the Trust  Collateral  Agent or acquires a financial asset for the
Trust Collateral  Agent, and in either case,  accepts it for credit to the Trust
Collateral  Agent's  securities  account (as so defined),  (C) becomes obligated
under other law,  regulation  or rule to credit a  financial  asset to the Trust
Collateral  Agent's  securities  account,  or (D) has agreed that it will comply
with  "entitlement  orders"  (as  defined  in  Section  8-102(a)(8)  of the UCC)
originated  by  the  Trust  Collateral  Agent  without  further  consent  by the
"entitlement  holder"  (as  defined in  Section  8-102(a)(7)  of the UCC),  of a
confirmation of the purchase and the making by such  securities  intermediary of
entries  on its  books  and  records  identifying  as  belonging  to  the  Trust
Collateral  Agent of (I) a specified  certificated  security  in the  securities
intermediary's possession,  (II) a quantity of securities that constitute or are
part  of  a  fungible  bulk  of   certificates   securities  in  the  securities
intermediary's  possession, or (III) a quantity of securities that constitute or
are part of a fungible bulk of securities shown on the account of the securities
intermediary on the books of another securities intermediary.

     "Depositor"  shall mean the Seller in its capacity as  Depositor  under the
Trust Agreement.

     "Determination  Date" means, with respect to a Distribution  Date, the last
day of the Due Period immediately preceding such Distribution Date.

     "Distribution  Account" means the account  established  pursuant to Section
5.1(a)(iv) hereof.

     "Distribution  Date"  means,  with  respect to each Due Period,  the twenty
first day of the following calendar month, or if such day is not a Business Day,
the immediately following Business Day, commencing January 21, 1998.

     "Draw  Date"  means,  with  respect to any  Distribution  Date,  the fourth
Business  Day  (as  defined  in the  Note  Policy)  immediately  preceding  such
Distribution Date.

     "Due Date" means, with respect to a Receivable, the date in each Due Period
on which a Scheduled Payment on such Receivable is due.

     "Due Period" means, with respect to the first Distribution Date, the period
beginning on the close of business on the Initial Cut-off Date and ending on the
close of  business  on  December  31,  1997.  With  respect  to each  subsequent
Distribution  Date,  the period from and including the first day of the calendar
month  preceding  the  month in  which  such  Distribution  Date  occurs  to and
including  the  last  day of the  calendar  month  preceding  the  month of such
Distribution Date.

     "Electronic  Ledger"  means the  electronic  master  record  of the  retail
installment sales contracts or installment loans of the Servicer.

     "Eligible Bank" means any depository  institution (which shall initially be
the Trust  Collateral  Agent)  acceptable  to the Insurer (so long as an Insurer
Default shall not have occurred and be continuing),  organized under the laws of



<PAGE>


the United States of America or any one of the states thereof or the District of
Columbia (or any United  States  branch or agency of a foreign  bank),  which is
subject to supervision and  examination by federal or state banking  authorities
and which at all times (a) has a net worth in excess of $50,000,000  and (b) has
either  (i) a rating  of P-1 from  Moody's  and A-1  from  S&P with  respect  to
short-term deposit obligations, or (ii) if such institution has issued long-term
unsecured  debt  obligations,  a rating of A2 or higher from Moody's and AA from
S&P with  respect to  long-term  unsecured  debt  obligations.  Such  depository
institution  (other than the Trust Collateral Agent) shall have been approved in
writing by the Controlling Party, operating in its discretion, by written notice
to the Trust Collateral Agent.

     "Eligible  Deposit  Account"  means (i) a segregated  trust account that is
maintained  with the corporate trust  department of a depository  institution or
trust company  acceptable to the Insurer  (unless a Insurer Default has occurred
and is  continuing,  in which  case such  institution  shall be one  subject  to
regulations regarding fiduciary funds on deposit substantially similar to 12 CFR
Section 9.10(b)),  or (ii) a segregated demand deposit account maintained with a
depository  institution or trust company  organized under the laws of the United
States of America,  or any of the States  thereof,  or the District of Columbia,
having a certificate of deposit,  short-term  deposit or commercial paper rating
of at least  "A-1+" from  Standard & Poor's and "P-1" from Moody's and (unless a
Insurer Default has occurred and is continuing) acceptable to the Insurer.

     "Eligible Investments" mean book-entry  securities,  negotiable instruments
or securities  represented  by  instruments  in bearer or registered  form which
evidence:

     (a)  direct   interest-bearing   obligations   of,   and   interest-bearing
obligations  fully guaranteed as to timely payment of principal and interest by,
the United States of America;

     (b)  demand  deposits,  time  deposits  or  certificates  of deposit of any
depository  institution or trust company  organized under the laws of the United
States of  America or any state  thereof or the  District  of  Columbia  (or any
domestic branch of a foreign bank) and subject to supervision and examination by
Federal  or state  banking  or  depository  institution  authorities  (including
depository receipts issued by any such institution or trust company as custodian
with  respect to any  obligation  referred  to in clause (a) above or portion of
such  obligation  for the benefit of the holders of such  depository  receipts);
provided,  however, that at the time of the investment or contractual commitment
to invest  therein  (which  shall be deemed to be made again each time funds are
reinvested  following each  Distribution  Date),  the commercial  paper or other
short-term  senior unsecured debt  obligations  (other than such obligations the
rating of which is based on the credit of a Person  other  than such  depository
institution  or trust company) of such  depository  institution or trust company
shall have a credit  rating  from  Standard & Poor's of AAA and from  Moody's of
Aaa;

     (c) commercial  paper and demand notes investing solely in commercial paper
that (i) is payable in United  States  dollars  and (ii) has, at the time of the
investment or contractual commitment to invest therein, a rating from Standard &
Poor's of A-1+ and from Moody's of P-1;


<PAGE>


     (d) investments in money market funds  (including funds for which the Trust
Collateral Agent or the Owner Trustee in each of their individual  capacities or
any of their  respective  Affiliates is investment  manager or advisor) having a
rating  from  Standard & Poor's of AAA-m or AAAm-G  and from  Moody's of Aaa and
(other than funds for which the Trust  Collateral  Agent or the Owner Trustee in
each of their  individual  capacities or any of their  respective  Affiliates is
investment manager or advisor) having been approved in writing by the Insurer;

     (e) bankers'  acceptances  issued by any  depository  institution  or trust
company referred to in clause (b) above;

     (f) repurchase obligations pursuant to a written agreement (i) with respect
to any  obligation  described  in clause (a) above,  where the Trustee has taken
actual or constructive  delivery of such obligation,  and (ii) entered into with
the  corporate  trust  department of a depository  institution  or trust company
organized under the laws of the United States or any State thereof, the deposits
of which are  insured  by the  Federal  Deposit  Insurance  Corporation  and the
short-term  unsecured  debt  obligations of which are rated "A-1+" by Standard &
Poor's and "P-1" by Moody's (including, if applicable,  the Trustee or any agent
of the Trustee acting in its respective commercial capacities);

     (g) any other  investment which is consistent with the ratings of the Notes
and acceptable to the Rating  Agencies and which,  so long as no Insurer Default
shall have occurred and be continuing, has been approved by the Insurer.

     Any of the foregoing  Eligible  Investments  may be purchased by or through
the Owner  Trustee  or the  Trust  Collateral  Agent or any of their  respective
Affiliates.

     "Eligible  Servicer"  means the  Servicer,  the Backup  Servicer or another
Person that,  at the time of its  appointment  as  Servicer,  (i) is servicing a
portfolio of motor  vehicle  retail  installment  sales  contracts  and/or motor
vehicle  installment  loans,  (ii) is legally  qualified and has the capacity to
service the Receivables and (iii) has  demonstrated  the ability  professionally
and competently to service a portfolio of motor vehicle retail installment sales
contracts and/or motor vehicle installment loans similar to the Receivables with
reasonable skill and care.

     "Eligible  Sub-Servicer"  means  any  Person  which  at  the  time  of  its
appointment  as  Sub-Servicer,  (i) is  servicing a portfolio  of motor  vehicle
retail installment sales contracts and/or motor vehicle  installment loans, (ii)
is legally qualified and has the capacity to service the Receivables,  (iii) has
demonstrated the ability  professionally  and competently to service a portfolio
of motor  vehicle  retail  installment  sales  contracts  and/or  motor  vehicle
installment loans similar to the Receivables with reasonable skill and care, and
(iv) is qualified  and entitled to use,  pursuant to a license or other  written
agreement, and agrees to maintain the confidentiality of, the software which the
Servicer  uses in connection  with  performing  its duties and  responsibilities
under this  Agreement or otherwise has available  software  which is adequate to
perform its duties and responsibilities under this Agreement.

     "Extension Ratio" has the meaning specified in Section 4.6(a).


<PAGE>

     "Final Scheduled  Distribution  Date" means the Distribution Date occurring
in May, 2004.

     "Financed Vehicle" means an automobile or light-duty truck, van or minivan,
together with all accessions thereto,  securing an Obligor's  indebtedness under
the respective Receivable.

     "Funding  Trust II"  means  National  Auto  Funding  Trust  II, a  Delaware
business trust.

     "Governmental Authority" means (a) any federal, state, county, municipal or
foreign  government or political  subdivision  thereof,  (b) any governmental or
quasi-governmental  agency, authority,  board, bureau,  commission,  department,
instrumentality or public body, (c) any court or administrative  tribunal or (d)
with respect to any Person, any arbitration  tribunal or other  non-governmental
authority to the jurisdiction of which such Person has consented.

     "Indenture"  means the Indenture  dated as of December 15, 1997,  among the
Issuer and Harris Trust and Savings Bank, as Trust Collateral Agent and Trustee,
as the same may be amended and supplemented from time to time.

     "Initial Cut-off Date" means December 15, 1997.

     "Initial  Receivables"  means any  Receivable  conveyed to the Trust on the
Closing Date.

     "Initial  Spread  Account  Deposit" has the meaning set forth in the Spread
Account Agreement.

     "Insurance Agreement" means the Insurance and Indemnity Agreement, dated as
of January 20, 1998, among the Insurer,  the Trust, the Seller and NAFI, as such
agreement may be amended,  supplemented or otherwise  modified from time to time
in accordance with the terms thereof.

     "Insurance  Agreement  Event of  Default"  means an "Event of  Default"  as
defined in the Insurance Agreement.

     "Insurance  Policy"  means,  with respect to a  Receivable,  any  insurance
policy  (including  the  insurance  policies  described  in Section  4.4 hereof)
benefiting  the holder of the  Receivable  providing  loss or  physical  damage,
credit life, credit disability,  theft, mechanical breakdown or similar coverage
with respect to the Financed Vehicle or the Obligor.

     "Insurer" means  Financial  Security  Assurance Inc., a monoline  insurance
company  incorporated  under the laws of the State of New York, or any successor
thereto, as issuer of the Note Policy.

     "Insurer  Default"  means  the  occurrence  and  continuance  of any of the
following events:


<PAGE>

     (a) the Insurer shall have failed to make a payment required under the Note
Policy in accordance with its terms;

     (b) the Insurer  shall have (i) filed a petition or  commenced  any case or
proceeding  under any provision or chapter of the United States  Bankruptcy Code
or any other similar  federal or state law relating to  insolvency,  bankruptcy,
rehabilitation,  liquidation or  reorganization,  (ii) made a general assignment
for the  benefit  of its  creditors,  or (iii) had an order for  relief  entered
against it under the United States  Bankruptcy Code or any other similar federal
or state law relating to insolvency, bankruptcy, rehabilitation,  liquidation or
reorganization which is final and nonappealable; or

     (c) a court of competent jurisdiction, the New York Department of Insurance
or  other  competent  regulatory  authority  shall  have  entered  a  final  and
nonappealable  order,  judgment or decree (i)  appointing a custodian,  trustee,
agent or  receiver  for the  Insurer or for all or any  material  portion of its
property or (ii)  authorizing the taking of possession by a custodian,  trustee,
agent or  receiver of the  Insurer  (or the taking of  possession  of all or any
material portion of the property of the Insurer).

     "Insurer Optional Deposit" means, with respect to any Distribution Date, an
amount  delivered by the Insurer  pursuant to Section  5.11, at its sole option,
other  than  amounts  in  respect  of a Note  Policy  Claim  Amount to the Trust
Collateral  Agent  for  deposit  into  the  Collection  Account  for  any of the
following  purposes:  (i) to provide  funds in respect of the payment of fees or
expenses  of any  provider  of  services  to the  Trust  with  respect  to  such
Distribution  Date;  or (ii) to  include  such  amount as part of the  Available
Amount for such  Distribution Date to the extent that without such amount a draw
would be required to be made on the Note Policy.

     "Interest  Rate" means 5.88% per annum  (computed on the basis of a 360-day
year of twelve 30-day months).

     "Investment  Earnings"  means,  with respect to any  Distribution  Date and
Trust  Account,  the  investment  earnings  on  amounts on deposit in such Trust
Account on such Distribution Date.

     "Issuer" means National Auto Finance 1998-1 Trust.

     "Lien"  means  a  security  interest,  lien,  charge,  pledge,  equity,  or
encumbrance of any kind.

     "Lien Certificate"  means, with respect to a Financed Vehicle,  an original
certificate of title,  certificate of lien or other  notification  issued by the
Registrar of Titles of the applicable  state to a secured party which  indicates
that the lien of the secured  party on the  Financed  Vehicle is recorded on the
original  certificate  of  title.  In any  jurisdiction  in which  the  original
certificate  of title is  required  to be given to the  Obligor,  the term "Lien
Certificate"  shall mean only a certificate or notification  issued to a secured
party.


<PAGE>

     "Liquidated Receivable" means, with respect to any Due Period, a Receivable
with respect to which any of the following has occurred  during such Due Period:
(i) 90 days have elapsed since  Repossession  of the related  Financed  Vehicle,
(ii) the  Servicer  (or  Sub-Servicer)  has in good  faith  determined  that all
amounts that it expects to recover under such Receivable have been received,  or
(iii) 90% or more of any  Scheduled  Payment on such  Receivable  is 120 days or
more (or,  if the  related  Obligor  is a debtor  under  Chapter  13 of the U.S.
Bankruptcy Code, 180 days or more) delinquent as of the end of such Due Period.

     "Liquidation Expenses" means,  reasonable  out-of-pocket expenses which are
incurred by the Servicer or any  Sub-Servicer in connection with the liquidation
of any Defaulted  Receivable.  Such expenses shall include,  without limitation,
legal fees and expenses, any unreimbursed amount expended by the Servicer or any
Sub-Servicer  pursuant to Section 4.8 (to the extent such amount is reimbursable
under the terms of Section  4.8)  respecting  the  related  Receivable,  and any
related and unreimbursed expenditures for property restoration or preservation.

     "Liquidation Proceeds" means, with respect to a Liquidated Receivable,  all
amounts realized with respect to such Receivable  (other than amounts  withdrawn
from the Series  1998-1  Spread  Account and  drawings  under the Note  Policy),
including  any proceeds  from any  Insurance  Policies,  net of amounts that are
required to be refunded to the Obligor on such  Receivable;  provided,  however,
that the Liquidation  Proceeds with respect to any Receivable  shall in no event
be less than zero.

     "Lockbox Account" means any bank account  maintained at a Lockbox Bank into
which collections under the Receivables are deposited in accordance with Section
4.6.

     "Lockbox  Agreement"  means a letter  agreement  among a Lockbox Bank,  the
Seller,  the Trust  Collateral  Agent,  the  Servicer  and, if  applicable,  any
Sub-Servicer,  relating  to one or more  Lockbox  Accounts,  as the  same may be
amended,  supplemented,  amended and restated or otherwise modified from time to
time in accordance  with the terms thereof.  So long as no Insurer Default shall
have occurred and be  continuing,  any Lockbox  Agreement is also required to be
acceptable to the Insurer.

     "Lockbox Bank" means any bank at which a Lockbox Account is maintained from
time to time and whose  short-term debt securities are rated A-1+ by S&P and P-1
by Moody's. So long as no Insurer Default shall have occurred and be continuing,
any Lockbox Bank is also required to be acceptable to the Insurer.

     "Lockbox  Processor"  means  the  Person  appointed  as  lockbox  processor
pursuant to the Lockbox Agreement and its successors thereunder.

     "Mandatory  Redemption  Date" means the  Distribution  Date relating to the
Reporting Date next succeeding the last day of the Pre-Funding Period.

     "Master Trust" means National Financial Auto Receivables Master Trust.



<PAGE>

     "Monthly  Pre-Funding  Period Reserve  Amount"  means,  with respect to any
Distribution Date occurring on or prior to the Distribution Date next succeeding
termination of the Pre-Funding Period, an amount equal to the excess, if any, of
(i) the product of (a) 1/12th,  (b) the Interest  Rate and (c) the average daily
balance of funds on deposit in the  Pre-Funding  Account from and  including the
preceding Distribution Date (or, in the case of the first Distribution Date, the
Closing Date) to but not including the current  Distribution Date, over (ii) the
amount of interest accrued on Eligible Investments on deposit in the Pre-Funding
Account from and including the preceding  Distribution  Date (or, in the case of
the first  Distribution Date, the Closing Date) to but not including the current
Distribution Date.

     "Monthly  Records"  means all records and data  maintained  by the Servicer
with respect to the  Receivables,  including the following  with respect to each
Receivable:  the account number; the originating  Dealer;  Obligor name; Obligor
address;  Obligor home phone number;  Obligor  business  phone number;  original
Principal  Balance;  original term;  Annual  Percentage Rate;  current Principal
Balance;  current  remaining term;  origination  date; first payment date; final
scheduled  payment  date;  next payment due date;  date of most recent  payment;
new/used  classification;  collateral  description;  days currently  delinquent;
number of contract  extensions  (months) to date;  amount of Scheduled  Payment;
current Insurance Policy expiration date; and past due late charges.

     "Moody's" means Moody's Investors Service, Inc., or its successor.

     "NAFI"  means  National  Auto  Finance  Company,   Inc  and  its  permitted
successors and assigns hereunder in accordance with the terms hereof.

     "Net Liquidation Proceeds" means, with respect to a Liquidated  Receivable,
all Liquidation Proceeds net of all Liquidation Expenses.

     "Net Loss  Rate"  means,  with  respect  to any Due  Period,  the  product,
expressed as a percentage,  of (i) twelve and (ii) a fraction,  the numerator of
which equals the excess of (A) the sum of (1) the aggregate Principal Balance of
all Receivables  that became  Liquidated  Receivables in such Due Period and (2)
accrued and unpaid  interest on such Principal  Balance  through the end of such
Due  Period  and (3) the  amount  of any  Bankruptcy  Losses,  over  (B) the Net
Liquidation  Proceeds  received by the Trust during such Due Period with respect
to all Liquidated  Receivables in the Trust  (including  Liquidated  Receivables
that became Liquidated Receivables in a prior Due Period) and the denominator of
which  equals the  arithmetic  average of the Pool Balance as of the end of such
Due Period and the Pool Balance as of the end of the preceding Due Period.

     "Note" or "Notes" has the meaning assigned to such term in the Indenture.

     "Note Balance" means  initially,  the aggregate  principal  amount of Notes
issued on the Closing Date and, thereafter, such principal amount reduced by all
amounts distributed to the Noteholders in respect of the Noteholders'  Principal
Distributable Amount.

     "Note   Distribution   Account"  means  the  account  designated  as  such,
established and maintained pursuant to Section 5.1.


<PAGE>


     "Note  Majority"  means the holders of a majority by aggregate  outstanding
principal balance of the Notes so long as the Notes are outstanding.

     "Note Policy" means the financial  guaranty insurance policy number 50661-N
issued by the Insurer to the Trust  Collateral  Agent, as agent for the Trustee,
for the benefit of the Noteholders, including any endorsements thereto.

     "Note Policy Claim Amount" means,  for any  Distribution  Date, shall equal
the  lesser of (i) the sum of the  Scheduled  Payments  (as  defined in the Note
Policy)  for such  Distribution  Date and (ii) the  excess,  if any,  of (x) the
amount  required to be  distributed  pursuant  to clauses  (i) through  (iii) of
Section 5.7(b) hereof (other than any Note  Prepayment  Amount) over (y) the sum
of the  Available  Amount  and  Deficiency  Claim  Amount  with  respect to such
Distribution Date.

     "Note  Pool  Factor"  for  the  Notes  as of the  close  of  business  on a
Distribution  Date means a seven-digit  decimal figure equal to the  outstanding
principal  amount  of such  Notes  (after  giving  effect  to any  distributions
reducing the Note Balance of the Notes on such Distribution Date) divided by the
original  outstanding  principal  amount of such  Class of Notes on the  Closing
Date.

     "Note  Prepayment  Amount"  means,  as  of  the  Distribution  Date  on  or
immediately  following  the last day of the  Pre-Funding  Period,  after  giving
effect to any transfer of Subsequent  Receivables  on such date, an amount equal
to the remaining Pre-Funded Amount on deposit in the Pre-Funding Account.

     "Noteholders"   and  "Holders"  have  the  meaning  assigned  to  the  term
"Noteholders" in the Indenture.

     "Noteholders' Distributable Amount" means, with respect to any Distribution
Date,  the  sum of the  Noteholders'  Principal  Distributable  Amount  and  the
Noteholders' Interest Distributable Amount.

     "Noteholders'  Interest  Carryover  Shortfall"  means,  with respect to any
Distribution Date, the excess of the Noteholders' Monthly Interest Distributable
Amount for the  preceding  Distribution  Date and any  outstanding  Noteholders'
Interest  Carryover  Shortfall on such  preceding  Distribution  Date,  over the
amount  in  respect  of  interest  that  was  actually  deposited  in  the  Note
Distribution Account on such preceding Distribution Date.

     "Noteholders'  Interest  Distributable  Amount" means,  with respect to any
Distribution  Date, the sum of the Noteholders'  Monthly Interest  Distributable
Amount  for such  Distribution  Date  and the  Noteholders'  Interest  Carryover
Shortfall for such Distribution Date.

     "Noteholders' Monthly Interest Distributable Amount" means, with respect to
any  Distribution  Date, the sum of (i) thirty (30) days of interest (or, in the
case of the initial Distribution Date, the number of days from and including the
Closing  Date  to but not  including  such  initial  Distribution  Date)  at the
Interest Rate on the Note Balance on such Distribution Date (before reduction of
the Note Balance by any distributions  made on such Distribution  Date) and (ii)


<PAGE>

interest on the Noteholders'  Interest Carryover  Shortfall at the Interest Rate
from the preceding  Distribution Date through the current  Distribution Date, to
the extent permitted by law.

     "Noteholders'  Principal Carryover Shortfall" means, as of the close of any
Distribution Date, the excess of the Noteholders' Principal Distributable Amount
and  any  outstanding   Noteholders'  Principal  Carryover  Shortfall  from  the
preceding  Distribution  Date over the amount in respect of  principal  that was
actually deposited in the Note Distribution Account on such Distribution Date.

     "Noteholders'  Principal  Distributable  Amount" means, with respect to (i)
any Distribution Date prior to the Final Scheduled Distribution Date, the sum of
(a) [91%] of the Principal  Distributable  Amount, (b) amounts  transferred from
the Pre-Funding  Account to the Note  Distribution  Account on such Distribution
Date, if any, pursuant to Section 5.7(a)(ii), and (c) the Noteholders' Principal
Carryover  Shortfall with respect to such Distribution  Date, and (ii) the Final
Scheduled  Distribution  Date,  the Note Balance  (before  giving  effect to any
distribution on the Notes on such Final Scheduled Distribution Date).

     "Notice  of Claim"  means the  notice  required  to file a claim  under the
Policy.

     "Obligor"  on a Receivable  means the  purchaser  or  co-purchasers  of the
Financed Vehicle and any other Person who owes payments under the Receivable.

     "Officers'  Certificate"  means a certificate signed by (i) a Co-Trustee of
the Seller or Funding  Trust II, as the case may be,  (ii) the  Chairman  of the
Board,  President,   Executive  Vice  President,  Senior  Vice  President,  Vice
President, or Assistant Vice President of the Custodian or NAFI, as the case may
be, or (iii) by a Servicing  Official in the case of the  Servicer,  and in each
case delivered to the Trust Collateral Agent as required by this Agreement.

     "Opinion  of  Counsel"   means  a  written   opinion  in  form   reasonably
satisfactory to the Trust  Collateral  Agent (and the Insurer if such opinion is
addressed  to the  Insurer)  of  counsel  reasonably  satisfactory  to the Trust
Collateral  Agent (and the Insurer if such opinion is addressed to the Insurer).
Any such counsel may be counsel to the Seller.

     "Original  Pool Balance" means the sum, as of any date, of the Pool Balance
as of the Initial Cut-off Date.

     "Originator" means consumer finance companies,  depository institutions and
other  financial  institutions  engaged in the financing of motor vehicle retail
installment  sale  contracts  from whom  NAFI  acquired  Receivables;  provided,
however, that "Originators" shall not include Dealers.

     "Originator  Agreement" means an agreement  pursuant to which NAFI acquired
Receivables  from an Originator,  as any of such  agreements has been and may be
amended, supplemented or otherwise modified from time to time in accordance with
the terms thereof.

     "Other Conveyed  Property" means all property conveyed by the Seller to the
Trust  pursuant to Section  2.1(b)  through (h) and Section  2.2(a)(ii)  through
(viii) of this Agreement.


<PAGE>

     "Owner  Trust  Estate" has the  meaning  assigned to such term in the Trust
Agreement.

     "Owner  Trustee"  means  Wilmington  Trust  Company,  not in its individual
capacity but solely as Owner Trustee under the Trust  Agreement,  its successors
in interest or any successor Owner Trustee under the Trust Agreement.

     "Person" means any  individual,  corporation,  estate,  partnership,  joint
venture,  association,  joint stock company,  trust  (including any  beneficiary
thereof),  unincorporated  organization or government or any agency or political
subdivision thereof or any other entity.

     "Physical Property" has the meaning assigned to such term in the definition
of "Delivery" above.

     "Pool Balance"  means, as of any date of  determination,  the Original Pool
Balance, plus the aggregate Principal Balance of the Subsequent Receivables,  if
any,  sold to the  Trust,  reduced  by any  principal  amounts  previously  paid
(excluding Purchased Receivables and Liquidated Receivables).

     "Post-Office  Box"  means the  separate  post-office  box  established  and
maintained  for the  benefit of the  Noteholders  and the  Insurer  pursuant  to
Section 4.6.

     "Preference Claim" has the meaning set forth in Section 6.2 hereof.

     "Pre-Funded  Amount"  means,  with respect to any  Distribution  Date,  the
amount  on  deposit  in  the  Pre-Funding  Account,  (exclusive  of  Pre-Funding
Earnings) which initially shall be $16,490,982.64.

     "Pre-Funding Account" has the meaning specified in Section 5.1.

     "Pre-Funding  Earnings" means any Investment Earnings on amounts on deposit
in the Pre-Funding Account.

     "Pre-Funding  Period"  means the  period  beginning  on and  including  the
Closing Date and ending on the first to occur of (a) the first date on which the
amount  on  deposit  in the  Pre-Funding  Account  (after  giving  effect to any
transfers therefrom in connection with the transfer of Subsequent Receivables to
the Issuer on such date) is less than  $100,000,  (b) the date on which an Event
of Default occurs under the Indenture or a Servicer Termination Event occurs and
(c) the close of business on April 30, 1998.

     "Pre-Funding  Period Reserve Account" means the account designated as such,
established and maintained pursuant to Section 5.2.

     "Pre-Funding  Period Reserve  Account  Initial  Deposit" means  $154,832.00
deposited on the Closing Date.


<PAGE>

     "Principal Balance" means, with respect to any Receivable,  as of any date,
the Amount  Financed minus (i) the principal  portion of each payment applied to
such  Receivable on or after the applicable  Cut-off Date in accordance with the
terms of such  Receivable and processed by the Servicer or a Sub-Servicer  on or
before  such date and (ii) any  Bankruptcy  Loss in respect of such  Receivable;
provided,  however,  that for any date  following  the Due  Period  in which the
remaining  principal  balance of such  Receivable  was included in the Principal
Distributable  Amount as a Liquidated  Receivable  or was subject to a principal
prepayment in full (including a repurchase pursuant to Sections 2.2, 2.5, 3.2 or
4.1), the Principal Balance for such Receivable shall be zero.

     "Principal  Distributable  Amount" means,  with respect to any Distribution
Date (other than the Final  Scheduled  Distribution  Date),  the sum of (i) that
portion of all collections on the Receivables (other than Liquidated Receivables
and Purchased  Receivables and, to the extent included in clause (iv) below, the
Principal Balance of all Purchased Default Receivables)  allocable to principal,
including  all  full  and  partial  principal  prepayments,  deposited  into the
Collection Account during the related Due Period,  (ii) the Principal Balance of
all Receivables that became Liquidated Receivables during the related Due Period
(other than Liquidated Receivables that became Purchased Receivables during such
Due Period and, to the extent  included  in clause  (iv)  below,  the  Principal
Balance of all Purchased Default Receivables), (iii) the portion of the Purchase
Amount   allocable  to  principal  of  all  Receivables  that  became  Purchased
Receivables  on or prior to the related  Reporting  Date and  subsequent  to the
preceding  Reporting  Date,  (iv) in the sole  discretion  of the  Insurer,  the
Principal  Balance as of the  related  Reporting  Date of all or any part of the
Purchased Default Receivables, and (v) the aggregate amount of Bankruptcy Losses
that occurred during the related Due Period.

     "Purchase Agreement" means the Purchase and Contribution  Agreement between
the Seller and NAFI,  dated as of December 15, 1997,  as such  Agreement  may be
amended from time to time.

     "Purchase  Amount"  means,  with respect to any  Receivable  required to be
retransferred  pursuant to  Sections  2.2,  2.5,  3.2 or 4.1 (or as to which the
Seller has exercised the purchase option in Section 11.1(a)), an amount equal to
the sum of (i) 100% of the Principal  Balance  thereof on the date of retransfer
and (ii) unpaid  accrued  interest  thereon from the date to which  interest was
last  paid by the  Obligor  to the due  Date in the Due  Period  in  which  such
retransfer  occurs.  For  purposes of  determining  the  Purchase  Amount of any
Receivable, the Principal Balance thereof on the date of retransfer shall not be
reduced to zero as a result of its classification as a Liquidated Receivable.

     "Purchased  Default  Receivable" means any Receivable with respect to which
the Seller or the Servicer is required to deposit in the Collection  Account the
related Purchase Amount pursuant to Sections 2.2, 2.5, 3.2 or 4.1 and has not so
deposited  such  amount  on the  Reporting  Date  on  which  it is  required  to
repurchase such Receivable following receipt of notice from the Trust Collateral
Agent that such Receivable is required to be retransferred.


<PAGE>

     "Purchased  Receivable"  means a  Receivable  purchased  as of the close of
business  on the last day of a Due Period by the  Servicer  pursuant  to Section
4.1(b) or  repurchased  by the Seller  pursuant to  Sections  2.2,  2.5,  3.2 or
11.1(a).

     "Rating   Agency"  means  Moody's  and  Standard  &  Poor's.   If  no  such
organization or successor maintains a rating on the Notes, "Rating Agency" shall
be a nationally  recognized  statistical rating organization or other comparable
Person designated by the Insurer.

     "Rating  Agency  Condition"  means,  with respect to any action,  that each
Rating Agency shall have been given 10 days' (or such shorter period as shall be
acceptable  to each Rating  Agency)  prior  notice  thereof and that each of the
Rating Agencies shall have notified the Seller, the Servicer,  the Insurer,  the
Owner  Trustee and the Trust  Collateral  Agent in writing that such action will
not result in a reduction or withdrawal of the then current rating of the Notes.

     "Receivable"  means each motor vehicle retail installment sale contract and
security agreement  (including any and all rights to receive payments thereunder
on and after the applicable  Cut-off Date and security interests in the Financed
Vehicle  securing such contract or note) assigned and  transferred to the Issuer
hereunder  as of  the  Closing  Date  or a  Subsequent  Transfer  Date  and  not
reassigned,  retransferred or otherwise  released in accordance  herewith,  each
such  Receivable  being  identified  in a  Receivables  Schedule  attached  to a
Subsequent Transfer Agreement.

     "Receivable Documents" means, with respect to a Receivable,  all papers and
documents  (including  those  contained  in the  Receivable  File) and all other
papers  and  records   (including   computerized   data)  of  whatever  kind  or
description,  whether  developed or originated by NAFI, a Dealer, an Originator,
the  Servicer  or another  Person,  required to document  the  Receivable  or to
service the Receivable.

     "Receivable  Files" means with respect to a Receivable,  the fully executed
original of such  Receivable;  the assignment of such  Receivable by a Dealer or
Originator  to NAFI,  the original  Title  Document or UCC  financing  statement
evidencing  that the  security  interest in a Financed  Vehicle  granted to NAFI
under such Receivable has been perfected under  applicable state law (except for
any Title Documents or UCC financing statements not returned from the applicable
public  records  office,  in which case NAFI will deliver to the Seller,  on the
Closing Date or the  Subsequent  Transfer Date, as the case may be, an Officer's
Certificate of NAFI indicating that the original of such Title Document has been
applied for at, or the original of such UCC  financing  statement  was delivered
to, such public  office and shows NAFI as the  lienholder  or secured  party and
that NAFI will deliver the  originals  thereof when  returned from such office);
the  original of any  assumption  agreement  or any  modification,  extension or
refinancing  agreement;  and the original  application of the related Obligor to
obtain the financing extended by such Receivable.

     "Receivable  Rate" means the annual  percentage  rate (as such term is used
with  respect to the federal  Truth-in-Lending  Act) of  interest  borne by, and
indicated on, a Contract.


<PAGE>

     "Receivables Schedule" means the schedule of Receivables attached hereto as
Schedule A and, with respect to Subsequent  Receivables  delivered  concurrently
with the execution and delivery of a Subsequent  Transfer Agreement to the Trust
Collateral  Agent,  the  schedule of  Receivables  attached  to such  Subsequent
Transfer Agreement as Schedule 1, each such schedule identifying each Receivable
being  transferred  and assigned to the Trust  pursuant to this Agreement or the
related  Subsequent  Transfer  Agreement  by the name of the Obligor and setting
forth as to each such  Receivable  its  Principal  Balance as of the  applicable
Cut-off  Date,  loan  number,  Receivable  Rate,  scheduled  monthly  payment of
principal and interest, final maturity date and original principal amount.

     "Record Date" with respect to each Distribution Date means the Business Day
immediately  preceding such Distribution Date, unless otherwise specified in the
Agreement.

     "Registrar of Titles" means,  with respect to any state,  the  governmental
agency  or body  responsible  for the  registration  of,  and  the  issuance  of
certificates of title relating to, motor vehicles and liens thereon.

     "Reporting Date" means, with respect to a Distribution Date, the earlier of
(i) the 15th day of the calendar month in which such  Distribution  Date occurs,
and (ii) the fourth Business Day preceding such Distribution Date.

     "Repossession" means any action taken or to be taken pursuant to the UCC or
other  applicable  laws in connection  with  recovery on a Defaulted  Receivable
(including any Liquidated  Receivable),  including  repossession  of the related
Financed  Vehicle with or without  judicial  proceedings,  sale of such Financed
Vehicle  at public or  private  sale,  retention  of such  Financed  Vehicle  in
satisfaction of the Obligor's obligations under such Defaulted Receivable,  or a
levy on and sheriff's sale of the related  Financed  Vehicle in enforcement of a
judgment on such Defaulted Receivable or by voluntary surrender or otherwise.

     "Required Reserve Amount" means, with respect to any Distribution  Date, an
amount equal to the product of (i) a per annum rate equal to the  Interest  Rate
less 250  basis  points  (2.5%),  (ii) the  amount  of funds on  deposit  in the
Pre-Funding  Account  after giving effect to any  withdrawals  therefrom on such
Distribution Date and (iii) a fraction,  the numerator of which is the number of
days  from  and  including  such   Distribution  Date  to  (but  excluding)  the
Distribution Date immediately  following the end of the Pre-Funding  Period, and
the denominator of which is 360.

     "Requisite  Amount"  has  the  meaning  specified  in  the  Spread  Account
Agreement.

     "Responsible  Officer" means,  with respect to the Trust Collateral  Agent,
any officer  within the Corporate  Trust Office of the Trust  Collateral  Agent,
including any Managing  Director,  Vice  President,  Assistant  Vice  President,
Assistant  Treasurer,  Assistant  Secretary  or any other  officer  of the Trust
Collateral Agent customarily  performing functions similar to those performed by
any of the above  designated  officers,  and also,  with respect to a particular
matter,  any other  officer  to whom such  matter is  referred  because  of such
officer's knowledge of and familiarity with the particular subject.


<PAGE>

     "Sale Agreement" means the Sale Agreement,  dated as of even date herewith,
between  Funding  Trust  II  and  the  Seller,  as  the  same  may  be  amended,
supplemented  or otherwise  modified  from time to time in  accordance  with the
terms thereof.

     "Schedule of  Representations"  means the Schedule of  Representations  and
Warranties attached hereto as Schedule B.

     "Scheduled  Payment"  means,  with  respect  to  any  Due  Period  for  any
Receivable,  the amount set forth in such  Receivable  as required to be paid by
the  Obligor  in such Due  Period.  If after the  Closing  Date,  the  Obligor's
obligation  under a  Receivable  with  respect to a  Collection  Period has been
modified  so as to differ  from the amount  specified  in such  Receivable  as a
result of (i) the order of a court in an  insolvency  proceeding  involving  the
Obligor,  (ii) pursuant to the Soldiers' and Sailors'  Civil Relief Act of 1940,
as amended, or (iii) modifications or extensions of the Receivable  permitted by
Sections  4.1(a) and (b), the Scheduled  Payment with respect to such Due Period
shall refer to the Obligor's payment  obligation with respect to such Due Period
as so modified.

     "Seller" means National  Financial Auto Funding Trust, a Delaware  business
trust, and its successors in interest to the extent permitted hereunder.

     "Series  1998-1  Spread  Account"  means the  account  designated  as such,
established and maintained pursuant to the Spread Account Agreement.

     "Servicer"  means National Auto Finance  Company,  Inc., as the servicer of
the Receivables, and each successor Servicer pursuant to Section 10.4.

     "Servicer Extension Notice" means the notice specified in Section 4.16.

     "Servicer Termination Event" means an event specified in Section 10.1.

     "Servicing Fee" has the meaning specified in Section 4.9.

     "Servicing Fee Rate" means 2.00% per annum.

     "Servicing  Official"  means any employee of the  Servicer  involved in, or
responsible for, the  administration and servicing of the Receivables whose name
appears on a list of servicing employees furnished to the Trust Collateral Agent
and the Insurer by the Servicer, as such list may from time to time be amended.

     "Servicer's  Certificate"  means an Officers'  Certificate  of the Servicer
delivered pursuant to Section 4.11(a), substantially in the form of Exhibit B.

     "Simple  Interest  Method"  means the method of  allocating  a fixed  level
payment on an obligation  between principal and interest,  pursuant to which the
portion of such payment that is allocated to interest is equal to the product of
the fixed rate of interest on such  obligation  multiplied by the period of time
(expressed  as a fraction of a year,  based on the actual  number of days in the


<PAGE>

calendar  month and 365 days in the calendar  year)  elapsed since the preceding
payment under the obligation was made.

     "Simple Interest  Receivable" means a Receivable under which the portion of
the payment  allocable  to interest  and the portion  allocable  to principal is
determined in accordance with the Simple Interest Method.

     "Spread Account  Agreement" means the Spread Account  Agreement dated as of
January 20, 1998 among the Insurer,  the Seller,  the Trust Collateral Agent and
the  Collateral  Agent,  as the same may be amended,  supplemented  or otherwise
modified from time to time in accordance with the terms thereof.

     "Standard & Poor's" means Standard & Poor's Ratings Services, a division of
The McGraw Hill Companies, Inc., or its successor.

     "Subsequent  Cut-off Date" means,  with respect to any Subsequent  Transfer
Date, the third Business Day prior thereto.

     "Subsequent  Purchase  Agreement"  means an  agreement  by and  between the
Seller  and  NAFI   pursuant  to  which  the  Seller  will  acquire   Subsequent
Receivables.

     "Subsequent  Receivables"  means the Receivables  transferred to the Issuer
pursuant to Section 2.2,  which shall be listed on the  Receivables  Schedule to
the related Subsequent Transfer Agreement.

     "Subsequent  Transfer  Agreement" means the agreement among the Issuer, the
Seller and the Servicer, substantially in the form of Exhibit A.

     "Subsequent  Transfer Date" means, with respect to Subsequent  Receivables,
any  date,  occurring  not  more  frequently  than  once  a  month,  during  the
Pre-Funding Period on which Subsequent  Receivables are to be transferred to the
Trust  pursuant  to this  Agreement,  and a  Subsequent  Transfer  Agreement  is
executed and delivered to the Trust and the Insurer.

     "Sub-Servicer"  means any Eligible  Sub-Servicer with whom NAFI has entered
into a Sub-Servicing Agreement.

     "Sub-Servicer  Account" means an account  maintained by a  Sub-Servicer  to
which  Obligors have been or will be instructed to remit  payments in respect of
the Receivables, maintained in accordance with Section 4.6(c).

     "Sub-Servicing  Agreement"  means the written contract between NAFI and any
Sub-Servicer  relating to servicing and/or  administration of the Receivables as
permitted by Section 4.2 hereof.

     "Supplemental  Servicing  Fee" means,  with respect to any Due Period,  any
payments received from an Obligor or a Dealer in connection with any application
fees, tax processing  fees,  wire transfer  fees,  express mail fees,  insurance


<PAGE>

premiums, late charges, taxes, fees or other charges imposed by any Governmental
Authority (other than any extension fees).

     "Term of the Note  Policy"  has the  meaning  specified  for  "Term of This
Policy" in the Note Policy.

     "Title Documents"  means, with respect to any Financed Vehicle,  the actual
motor vehicle title or certificate of title for such Financed  Vehicle issued by
the Registrar of Titles or other government  agency in the jurisdiction in which
such  Financed   Vehicle  is   registered;   alternatively,   in  those  certain
jurisdictions  whose law requires  that the original of the actual motor vehicle
title or certificate of title be possessed by the Obligor,  then, in lieu of the
actual title or certificate of title,  Title Documents shall mean such duplicate
titles,  certificates  or other  documents  as are  permitted,  required  and/or
contemplated  to be  possessed  by the  secured  party  under  the  laws of such
jurisdiction.

     "Transaction  Documents"  shall have the  meaning  assigned  thereto in the
Insurance Agreement.

     "Trigger  Event" has the  meaning  assigned  thereto in the Spread  Account
Agreement.

     "Trust" means the Issuer.

     "Trust  Account  Property"  means  the  Trust  Accounts,  all  amounts  and
investments  held from time to time in any Trust Account (whether in the form of
deposit  accounts,  Physical  Property,  book-entry  securities,  uncertificated
securities or otherwise), and all proceeds of the foregoing.

     "Trust Accounts" has the meaning assigned thereto in Section 5.1.

     "Trust  Agreement" means the Trust Agreement dated as of December 15, 1997,
between  the  Seller  and the  Owner  Trustee,  as the same may be  amended  and
supplemented from time to time.

     "Trust  Certificates"  means the certificates  issued pursuant to the Trust
Agreement evidencing beneficial ownership interests in the Trust.

     "Trust  Collateral Agent" means the Person acting as Trust Collateral Agent
hereunder,  its successors in interest and any successor Trust  Collateral Agent
hereunder.

     "Trust Officer" means, (i) in the case of the Trust  Collateral  Agent, any
officer  within  the  Corporate  Trust  Office  of the Trust  Collateral  Agent,
including any Managing  Director,  Vice  President,  Assistant  Vice  President,
Assistant  Treasurer,  Assistant  Secretary  or any other  officer  of the Trust
Collateral Agent customarily  performing functions similar to those performed by
any of the above  designated  officers,  and also,  with respect to a particular
matter,  any other  officer  to whom such  matter is  referred  because  of such
officer's knowledge of and familiarity with the particular subject,  and (ii) in
the case of the Owner Trustee,  any officer in the Corporate Trust Office of the


<PAGE>

Owner  Trustee or any agent of the Owner  Trustee under a power of attorney with
direct  responsibility  for the  administration  of this Agreement or any of the
Transaction Documents on behalf of the Owner Trustee.

     "Trust  Property"  means the  property and  proceeds  conveyed  pursuant to
Section 2.1 and Section 2.2.  Although the Seller has pledged the Series  1998-1
Spread  Account to the Trust  Collateral  Agent and the Insurer  pursuant to the
Spread Account  Agreement,  the Series 1998-1 Spread Account shall not under any
circumstances be deemed to be a part of or otherwise  includable in the Trust or
the Trust Property.

     "Trustee" means the Person acting as Indenture Trustee under the Indenture,
its successors in interest and any successor trustee under the Indenture.

     "UCC"  means the  Uniform  Commercial  Code as in  effect  in the  relevant
jurisdiction on the date of the Agreement.

     "Unearned Finance Charge" means, with respect to any Receivable, the amount
of the add-on finance charge that, under the term of such  Receivable,  would be
required to be refunded or credited to the related  Obligor in  accordance  with
such Receivable if such Receivable were then prepaid in full.

     SECTION 1.2. Other Definitional Provisions.

     (a) Capitalized terms used herein and not otherwise defined herein have the
meanings assigned to them in the Indenture,  or, if not defined therein,  in the
Trust Agreement.

(b) All terms  defined in this  Agreement  shall have the defined  meanings when
used in any instrument  governed hereby and in any certificate or other document
made or delivered pursuant hereto unless otherwise defined therein.

     (c) As used in this Agreement, in any instrument governed hereby and in any
certificate  or other  document  made or delivered  pursuant  hereto or thereto,
accounting  terms  not  defined  in this  Agreement  or in any such  instrument,
certificate  or other  document,  and  accounting  terms partly  defined in this
Agreement or in any such instrument, certificate or other document to the extent
not defined,  shall have the respective  meanings given to them under  generally
accepted accounting principles as in effect on the date of this Agreement or any
such  instrument,  certificate or other document,  as applicable.  To the extent
that  the  definitions  of  accounting  terms in this  Agreement  or in any such
instrument,  certificate or other document are inconsistent with the meanings of
such terms under  generally  accepted  accounting  principles,  the  definitions
contained in this  Agreement  or in any such  instrument,  certificate  or other
document shall control.

     (d) Any agreement,  instrument or statute  defined or referred to herein or
in any  instrument or  certificate  delivered in connection  herewith means such
agreement,  instrument  or statute  as from time to time  amended,  modified  or
supplemented and includes (in the case of agreements or instruments)  references
to all attachments thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.


<PAGE>

     SECTION  1.3.  Usage of  Terms.  With  respect  to all  terms  used in this
Agreement,  the  singular  includes  the  plural  and the  plural  includes  the
singular;  words  importing any gender  include the other gender;  references to
"writing" include printing, typing, lithography,  and other means of reproducing
words  in a  visible  form;  references  to  agreements  and  other  contractual
instruments include all subsequent amendments thereto or changes therein entered
into in  accordance  with  their  respective  terms and not  prohibited  by this
Agreement; references to Persons include their permitted successors and assigns;
the  terms  "include"  or  "including"  mean  "include  without  limitation"  or
"including without limitation; "the words "herein", "hereof" and "hereunder" and
other words of similar  import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision, and Article, Section, Schedule
and Exhibit  references,  unless  otherwise  specified,  refer to  Articles  and
Sections of Schedules and Exhibits to this Agreement.

     SECTION 1.4. Certain References. All references to the Principal Balance of
a  Receivable  as of any  date of  determination  shall  refer  to the  close of
business on such day.

     SECTION  1.5.  No  Recourse.  Without  limiting  the  obligations  of  NAFI
hereunder,  no  recourse  may be  taken,  directly  or  indirectly,  under  this
Agreement or any certificate or other writing  delivered in connection  herewith
or therewith, against any stockholder, officer or director, as such, of NAFI, or
of any  predecessor or successor of NAFI.

     SECTION 1.6. Action by or Consent of Noteholders. Whenever any provision of
this Agreement  refers to action to be taken,  or consented to, by  Noteholders,
such  provision  shall be deemed to refer to the  Noteholder of record as of the
Record Date immediately  preceding the date on which such action is to be taken,
or consent given,  by  Noteholders.  Solely for the purposes of any action to be
taken, or consented to, by Noteholders,  any Note registered in the name of NAFI
or any  Affiliate  thereof  shall be  deemed  not to be  outstanding;  provided,
however,  that, solely for the purpose of determining whether a Trust Officer of
the  Trustee or the Trust  Collateral  Agent is  entitled  to rely upon any such
action or consent,  only Notes which the Owner Trustee, the Trust Officer of the
Trustee or the Trust  Collateral  Agent,  respectively,  actually knows to be so
owned shall be so disregarded.

     SECTION 1.7.  Material  Adverse Effect.  Whenever a determination  is to be
made under this Agreement as to whether a given event, action, course of conduct
or set of facts or  circumstances  could or would have a material adverse effect
on  the   Noteholders  (or  any  similar  or  analogous   determination),   such
determination  shall be made without taking into account the insurance  provided
by the Note Policy.

     SECTION  1.8.  Calculations  as to  Principal  and  Interest  in Respect of
Receivables. For all purposes of this Agreement the allocation of a payment on a
Receivable  between  principal  and  interest  shall  be  made  based  upon  the
amortization  method provided in such  Receivable.  For purposes of allocating a
pay-ahead payment on a Receivable between principal and interest,  the pay-ahead
shall be deemed to have been  received on the date it was actually  due. For all
purposes of this  Agreement,  no amount  shall be treated as  collected  under a
Receivable until such amount has been deposited into the Collection Account.


<PAGE>

                                   ARTICLE II

                            CONVEYANCE OF RECEIVABLEs

     SECTION 2.1.  Conveyance of Initial  Receivables.  In  consideration of the
Issuer's  delivery to or upon the order of the Seller on the Closing Date of the
net proceeds from the sale of the Notes and the other amounts to be  distributed
from time to time to the Seller in accordance  with the terms of this Agreement,
the Seller does hereby sell, transfer,  assign, set over and otherwise convey to
the Issuer,  without recourse (subject to the obligations set forth herein), all
right,  title and  interest of the Seller in and to the  following,  whether now
owned or hereafter acquired:

     (a) the Initial Receivables and all monies received thereon on or after the
Initial  Cut-off Date  (including  amounts due on or before the Initial  Cut-off
Date but  received  by NAFI,  the Seller or the  Issuer on or after the  Initial
Cut-off Date);

     (b) any  proceeds  and the right to receive  proceeds  with  respect to the
Initial Receivables from claims on any physical damage,  credit life, disability
insurance or other policies  covering the related Financed Vehicles or Obligors,
including  rebates of insurance  premiums  relating to the Receivables,  and any
proceeds from the liquidation of the Initial Receivables;

     (c) all rights  against  Dealers  pursuant to Dealer  Agreements or against
Originators pursuant to Originator Agreements;

     (d) the related Receivables Files and any and all other documents that NAFI
or the Seller keeps on file in accordance with its customary procedures relating
to  the  Receivables,  the  Obligors  or the  Financed  Vehicles;

     (e) property  (including the right to receive future Liquidation  Proceeds)
that  secures a  Receivable  and that has been  acquired  by or on behalf of the
Trust pursuant to liquidation of such Receivable;

     (f) all funds on deposit from time to time in the Trust  Accounts (less all
investments and proceeds thereof), and all rights of the Issuer therein;

     (g) its rights and benefits,  but none of its obligations or burdens, under
the Conveyance Agreements, including the delivery requirements,  representations
and  warranties  and the cure  and  repurchase  obligations  of NAFI  under  the
Purchase  Agreement;  and

     (h) the proceeds of any and all of the  foregoing.

     The  foregoing  transfer  and  assignment  does not  constitute  and is not
intended  to  result  in an  assumption  by  the  Trust  Collateral  Agent,  any
Noteholder  or the Insurer of any  obligation  of the Seller,  the Master Trust,
Funding Trust II or NAFI to the Obligors,  Dealers, insurers or any other Person
in connection  with the  Receivables,  the  Receivable  Files,  or the insurance
policies or any agreements or instruments relating to any of them.



<PAGE>

     The Seller  intends that the transfer and  assignment  by the Seller to the
Trust  contemplated by this Agreement  constitute a sale to the Trust of all the
Seller's right,  title, and interest in and to the Receivables and the remainder
of the Trust Property  (other than the Note Policy) and the beneficial  interest
in and title to the  Receivables  and the other Trust Property shall not be part
of the Seller's estate in the event of the filing of a bankruptcy petition by or
against the Seller under any bankruptcy  law;  provided that, in the event that,
notwithstanding the intent of the Seller, the transfer is not held to be a sale,
then it is  intended  that the  conveyance  shall be  deemed  to be a grant of a
security  interest as set forth below. By the transfer,  assignment and set-over
contemplated  by this Section 2.1 and Section 2.2, the Seller further grants and
transfers to the Trust Collateral  Agent, for the benefit of all Noteholders and
the Insurer, a first priority,  perfected security interest, as their respective
interests  appear  in  Section  5.7,  in all of the  Seller's  right,  title and
interest  in,  to and  under  the  Receivables  and the  remainder  of the Trust
Property,  whether now  existing  or  hereafter  acquired,  and agrees that this
Agreement shall also constitute a security agreement under applicable law. On or
prior to the Closing Date, the Seller shall have filed a UCC financing statement
or statements,  appropriate  under the applicable UCC, to reflect the assignment
of the  Receivables and the remainder of the Trust Property (other than the Note
Policy)  by the  Seller to the Trust  Collateral  Agent and the  Insurer  and to
protect the  Noteholders' and the Insurer's  interest in the Receivables,  their
proceeds  and the  Financed  Vehicles,  against  all  other  Persons  and  shall
thereafter  file any  appropriate  continuation  statements in respect  thereof.
During  the term of this  Agreement,  the  Seller  shall  not  change  its name,
identity or structure or relocate its chief executive  office or principal place
of business without first giving at least 30 days' advance written notice to the
Trust Collateral Agent, the Servicer and the Insurer; provided however, that the
Trust Collateral Agent, the Servicer and the Insurer shall,  subject to the last
sentence of this  paragraph,  have no right or power to prohibit a change in the
Seller's  name,  identity or structure or a relocation  of, its chief  executive
office or  principal  place of  business.  If any change in the  Seller's  name,
identity  or  structure  or the  relocation  of its  chief  executive  office or
principal place of business would make any financing or  continuation  statement
or notice of lien filed in connection with this Agreement  misleading within the
meaning of applicable  provisions of the UCC or any title  statute,  the Seller,
promptly but in no event later than thirty days after the effective date of such
change, shall file such amendments or take such other actions as may be required
to preserve and protect the Trust Collateral Agent's interest in the Receivables
and proceeds  thereof and the Financed  Vehicles and the  remainder of the Trust
Property. Promptly after filing such amendments or taking such other action, the
Seller shall deliver to the Trust Collateral Agent and the Insurer an Opinion of
Counsel  stating  that all  financing  statements,  continuation  statements  or
amendments  thereto  necessary to continue the perfection of the interest of the
Trust  Collateral  Agent in the Trust  Property have been filed and reciting the
details thereof.

     SECTION 2.2. Conveyance of Subsequent Receivables.

     Subject  to  the   conditions   set  forth  in  paragraph  (b)  below,   in
consideration of the Issuer's delivery on each related Subsequent  Transfer Date
to or upon the order of the Seller of the amount  described in Section 5.9(a) to
be delivered to the Seller, the Seller does hereby sell,  transfer,  assign, set
over and  otherwise  convey  to the  Issuer  without  recourse  (subject  to the
obligations  set forth herein),  all right,  title and interest of the Seller in
and to the following whether then owned or thereafter acquired:



<PAGE>

          (i) the  Subsequent  Receivables  listed on  Schedule 1 to the related
     Subsequent  Transfer  Agreement and all monies received thereon on or after
     the related Subsequent Cut-off Date (including amounts due on or before the
     Subsequent  Cut-off Date but received by NAFI,  the Seller or the Issuer on
     or after the Subsequent Cut-off Date);

          (ii) any  proceeds and the right to receive  proceeds  with respect to
     such  Subsequent  Receivables  from claims on any physical  damage,  credit
     life,  disability or other insurance policies covering the related Financed
     Vehicles or Obligors,  including rebating of insurance premiums relating to
     the  Receivables,  and any proceeds from the  liquidation of the Subsequent
     Receivables;

          (iii) all rights of the Seller against the Dealers  pursuant to Dealer
     Agreements or against Originators pursuant to Originator  Agreements;

          (iv) the  related  Receivables  Files and any and all other  documents
     that NAFI or the  Seller  keeps on file in  accordance  with its  customary
     procedures  relating  to the  Receivables,  the  Obligors  or the  Financed
     Vehicles;

          (v)  property  (including  the  right to  receive  future  Liquidation
     Proceeds)  that  secures a Receivable  and that has been  acquired by or on
     behalf of the Trust pursuant to liquidation of such Receivable;

          (vi) all funds on  deposit  from  time to time in the  Trust  Accounts
     (less all investments and proceeds  thereof),  and all rights of the Issuer
     therein;

          (vii) its rights and benefits, but none of its obligations or burdens,
     under each of the Subsequent  Purchase  Agreements,  including the delivery
     requirements,  representations  and  warranties and the cure and repurchase
     obligations of NAFI under each of the Subsequent Purchase Agreements, on or
     after the related  Subsequent  Cut-off Date; and

          (viii) the proceeds of any and all of the foregoing.

     (b) The Seller shall transfer to the Issuer the Subsequent  Receivables and
the other property and rights related  thereto  described in paragraph (a) above
during the Pre-Funding Period (but not more often than once during each calendar
month or as more  frequently  consented to in writing by the Insurer)  only upon
the satisfaction of each of the following  conditions on or prior to the related
Subsequent  Transfer  Date with  respect  to the  Subsequent  Receivables  being
transferred on such Subsequent Transfer Date:

          (i) the Seller shall have  provided the Trust  Collateral  Agent,  the
     Owner Trustee,  each Rating Agency and the Insurer with an Addition  Notice
     not later than ten days prior to such  Subsequent  Transfer  Date and shall
     have provided any information  reasonably requested by any of the foregoing
     with respect to such Subsequent Receivables;


<PAGE>

          (ii) the Seller shall have delivered the Receivables Schedule for such
     Subsequent Receivables to each Rating Agency and the Insurer at least three
     Business  Days  prior  to such  Subsequent  Transfer  Date,  and the  Trust
     Collateral Agent and the Insurer shall have received,  prior to 10:00 a.m.,
     New York City time, on such Subsequent  Transfer Date,  written notice from
     each Rating  Agency to the effect that such transfer will not result in the
     downgrade or  withdrawal  of the rating then assigned by such Rating Agency
     to the Notes;

          (iii) the Seller  shall have  delivered  to the Owner  Trustee and the
     Trust Collateral Agent a duly executed  Subsequent Transfer Agreement which
     shall include the Receivables Schedule for such Subsequent  Receivables and
     a copy  thereof  to the  Insurer;

          (iv) the Seller shall, to the extent required by Section 2.4(b),  have
     deposited  or  caused  to  be  deposited  in  the  Collection  Account  all
     collections  in  respect  of the  Subsequent  Receivables;

          (v) as of each Subsequent Transfer Date, no Servicer Termination Event
     or  Insurance  Agreement  Event  of  Default  shall  have  occurred  and be
     continuing;

          (vi)  after  giving   effect  to  the  transfer  of  such   Subsequent
     Receivables on such Subsequent  Transfer Date, the Receivables  transferred
     to the Trust pursuant  hereto shall meet the following  criteria  (based on
     the  characteristics of the Initial Receivables on the Initial Cut-off Date
     and the Subsequent  Receivables on the related  Subsequent  Cut-off Dates):
     (i) the weighted  average APR of the  Receivables  transferred to the Trust
     shall not be less than 18.0%,  unless, with the prior consent of the Rating
     Agencies and the Insurer,  the Seller  increases the Initial Spread Account
     Deposit with respect to such Subsequent  Receivables by the amount required
     by the Insurer; (ii) the weighted average remaining term of the Receivables
     transferred  to the Trust  shall not be greater  than 55 months;  (iii) not
     more than 80% of the Aggregate  Principal  Balance shall represent loans to
     finance  the  purchase  of used  Financed  Vehicles;  and  (iv)  the  final
     scheduled payment date on the Receivable with the latest maturity shall not
     be later  than  April  21,  2003;

          (vii) each of the  representations  and warranties  made by the Seller
     pursuant  to Section 8.1 and  pursuant to Section 3.1 with  respect to such
     Subsequent  Receivables  shall  be  true  and  correct  as of  the  related
     Subsequent   Transfer  Date,  and  the  Seller  shall  have  performed  all
     obligations to be performed by it hereunder on or prior to such  Subsequent
     Transfer Date;

          (viii) the Insurer (so long as no Insurer  Default shall have occurred
     and be  continuing),  in its  absolute  and  sole  discretion,  shall  have
     approved the transfer of such Subsequent Receivables to the Trust and shall
     have been  reimbursed for any fees and expenses  incurred by the Insurer in
     connection  with the  granting  of such  approval;

          (ix) on or before such  Subsequent  Transfer  Date,  the Seller  shall
     deliver to the Trust  Collateral  Agent (with copies to the Insurer) (A) an


<PAGE>


     Officer's  Certificate of NAFI substantially in the form attached hereto as
     Exhibit 2.2A, (b) an Officer's  Certificate of the Seller  substantially in
     the form  attached  hereto as Exhibit 2.2B,  and (C) a Subsequent  Transfer
     Agreement executed by the Seller and including, as an attachment thereto, a
     Receivables Schedule identifying such Subsequent Receivables; and

          (x) on or before such Subsequent  Transfer Date, the Seller shall have
     provided any information  reasonably requested by the Rating Agencies,  the
     Insurer  or the Trust  Collateral  Agent with  respect  to such  Additional
     Contracts.

     The  Seller  covenants  that in the event any of the  foregoing  conditions
precedent are not  satisfied  with respect to any  Subsequent  Receivable on the
date required as specified above,  the Seller will  immediately  repurchase such
Subsequent  Receivable  from the Trust,  at a price equal to the Purchase Amount
thereof, in the manner specified in Section 2.5.

     (c) Within ten Business Days after the last day of the Pre-Funding  Period,
the Seller shall, at its cost and expense, cause KPMG Peat Marwick or such other
nationally  recognized  firm of public  accountants  as may be acceptable to the
Insurer to deliver to the Insurer a report covering the Receivables  then in the
Trust and  addressing  such  procedures  as the Seller and the Insurer may agree
upon.

     SECTION 2.3.  Further  Encumbrance of Trust Property.  (a) Immediately upon
the  conveyance  to the Trust by the  Seller  of any item of the Trust  Property
pursuant to Section 2.1 or 2.2,  all right,  title and interest of the Seller in
and to such item of Trust Property shall  terminate,  and all such right,  title
and interest shall vest in the Trust, in accordance with the Trust Agreement and
Sections  3802 and 3805 of the Business  Trust  Statute (as defined in the Trust
Agreement).

     (b)  Immediately  upon the vesting of the Trust Property in the Trust,  the
Trust  shall  have the sole  right to pledge or  otherwise  encumber  such Trust
Property.  Pursuant to the  Indenture and  contemporaneously  with such property
vesting  in the Trust  pursuant  to clause (a) above,  the Trust  shall  grant a
security  interest to the Trust  Collateral  Agent (on behalf of the Noteholders
and the Insurer) in the Trust Property to secure the repayment of the Notes. The
Trust  Certificates  shall  represent the beneficial  ownership  interest in the
Trust  Property,  and  the  Certificateholders  shall  be  entitled  to  receive
distributions with respect thereto as set forth herein.

     (c) Prior to the  payment in full on the Notes,  the payment of all amounts
due to the Insurer  under the  Insurance  Agreement,  the end of the Term of the
Note Policy and the surrender of the Note Policy by the Collateral  Agent to the
Insurer,  the Trust  Collateral  Agent  shall  hold the Trust  Property  for the
exclusive  benefit of the Trustee on behalf of the  Noteholders and the Insurer.
Following  the payment in full of the Notes and the release and discharge of the
Indenture,  all covenants of the Trust contained in Article III of the Indenture
shall, until payment in full of the Trust  Certificates,  remain as covenants of
the  Trust  for  the  benefit  of  the  Certificateholders,  enforceable  by the
Certificateholders  to the same extent that such covenants  were  enforceable by
the Noteholders prior to the discharge of the Indenture. Any rights of the Trust
Collateral  Agent under Article IV of the Indenture  following  discharge of the
Indenture shall thereupon vest in Certificateholders.


<PAGE>


     (d) The Trust  Collateral  Agent shall,  at such time as there are no Notes
outstanding  and all sums due to (i) the Trustee or any agent or counsel thereof
pursuant to the  Indenture,  (ii) the Insurer under the Insurance  Agreement and
(iii) the Trust Collateral Agent pursuant to this Agreement, have been paid, and
the Term of the Note  Policy  has  expired  and the Trust  Collateral  Agent has
surrendered the Note Policy to the Insurer, release any remaining portion of the
Trust Property to the Seller.

     SECTION 2.4. Books and Records;  Payments on Receivables.  (a) The Servicer
shall  be  responsible  for  maintaining,  and  shall  maintain  and  cause  the
respective  Sub-Servicers,  if any,  to  maintain,  a complete  set of books and
records  (including tapes and disks for computer use) for each Receivable to the
extent  that such books and  records  were  delivered  to the  Servicer  or such
Sub-Servicer  or were  developed  by it  during  the  course of  servicing  such
Receivable. The Servicer shall, and shall cause the respective Sub-Servicers to,
maintain  such  books of  account  and other  records  as will  enable the Trust
Collateral Agent to determine the ownership status of each Receivable;  provided
however,  that neither the Servicer  nor any  Sub-Servicer  shall be required to
physically  mark or segregate any Receivables or other  Receivable  Documents to
indicate  such  ownership  status.  On or  before  the  Closing  Date  and  each
Subsequent  Transfer  Date,  the Seller and the  Servicer  shall  deliver to the
Custodian all Receivable  Documents in its possession or under its control,  and
shall  promptly   deliver  to  the  Custodian  any  Receivable   Documents  that
subsequently come into its possession or within its control. The Servicer hereby
warrants,  represents and covenants to and with the Trust  Collateral  Agent and
the Insurer that  recordation  of the name of the Servicer as  lienholder in the
Title Documents  respecting any Financed  Vehicle as well as such lien itself is
maintained  by the  Servicer  as agent  for the Trust  Collateral  Agent for the
benefit  of the  Trust  and  the  Servicer  has no  equitable  ownership  in the
Receivables, except as it may have by virtue of ownership of a Trust Certificate
or an equity interest in the Seller or any Noteholder. The Servicer acknowledges
that it is holding  the  Receivables  coming into its  possession  and any other
property  constituting a part of the Trust Property held by it, in trust for the
benefit  of the Trust  Collateral  Agent (on behalf of the  Noteholders  and the
Insurer).

     (b) On the Closing Date,  the Seller shall deliver to the Trust  Collateral
Agent for deposit in the Collection  Account,  or to the extent  received by the
Servicer  or any  Sub-Servicer,  cause the  Servicer  to  deliver or cause to be
delivered to the Trust Collateral  Agent for deposit in the Collection  Account,
all payments  received on the  Receivables on or after the Initial  Cut-off Date
and on or before the second Business Day preceding the Closing Date.  Within two
Business Days after a Subsequent  Transfer Date, the Seller shall deliver to the
Trust Collateral Agent for deposit in the Collection  Account,  or to the extent
received by the Servicer or any  Sub-Servicer,  cause the Servicer to deliver or
cause  to be  delivered  to  the  Trust  Collateral  Agent  for  deposit  in the
Collection  Account,  all payments  received on the  Receivables on or after the
applicable Cut-off Date and on or before such Subsequent Transfer Date.

     SECTION 2.5. Seller Repurchase of Receivables.  The Trust Collateral Agent,
based solely upon the representations of the Custodian,  acknowledges receipt by
the Custodian as of the Closing Date and each  Subsequent  Transfer Date, as the
case may be, of a Receivable File relating to each Receivable.  It is understood
and agreed that the Custodian makes no  representation as to the contents of any


<PAGE>
Receivable File. If the Servicer or any such Sub-Servicer subsequently finds any
document or documents  constituting a part of a Receivable File to be missing or
defective  in any material  respect,  the  Servicer or such  Sub-Servicer  shall
promptly  so notify the Trust  Collateral  Agent,  the Insurer and the Seller in
writing, and the Servicer shall add such item to the exceptions list. The Seller
shall use best  efforts to cure each such  omission or defect on the  exceptions
list.  If the Seller does not correct or cure any such omission or defect within
sixty (60) days from the date the Trust  Collateral  Agent was  notified of such
omission or defect,  then the Seller shall  promptly  accept a retransfer of the
related  Receivable from the Trust Collateral Agent. The Purchase Amount for the
retransferred  Receivable  shall  be  delivered  by  the  Seller  to  the  Trust
Collateral  Agent for deposit in the Collection  Account and upon receipt of the
Purchase Amount by the Trust  Collateral Agent and its receipt of written notice
thereof,  the Trust Collateral Agent shall cause the Custodian to release to the
Seller the related  Receivable File and the Trust Collateral Agent shall execute
and deliver such  instruments  of transfer or  assignment,  in each case without
recourse, as shall be reasonably necessary to vest in the Seller or its designee
any Receivable  released  pursuant hereto.  It is understood and agreed that the
obligation of the Seller to accept a retransfer of any  Receivable as to which a
material defect in or omission of a constituent document exists shall constitute
the sole remedy  respecting such defect or omission  available to Noteholders or
the Trust Collateral Agent on behalf of Noteholders.

                                  ARTICLE III

                                 THE RECEIVABLES

     SECTION 3.1. Representations and Warranties of Seller. The Seller makes the
representations  and  warranties  set forth on the  Schedule of  Representations
attached  hereto as  Schedule  B as to the  Receivables  and the Other  Conveyed
Property  on which  the  Issuer  is  deemed  to have  relied  in  acquiring  the
Receivables  and upon which the  Insurer  shall be deemed to rely in issuing the
Note Policy.  Such  representations and warranties speak as of the execution and
delivery of this Agreement and as of the Closing Date in the case of the Initial
Receivables,  and as of the  related  Subsequent  Transfer  Date  in case of the
Subsequent  Receivables  (unless  another  date  or  time  period  is  otherwise
specified or indicated in the particular  representation or warranty), but shall
survive the sale,  transfer and assignment of the  Receivables to the Issuer and
the  pledge   thereof  to  the   Trustee   pursuant  to  the   Indenture.   Such
representations  and warranties  shall survive  assignment of the Receivables to
the Trust  Collateral Agent and shall survive as long as any Note is outstanding
or this Agreement has not been terminated.

     SECTION 3.2. Repurchase upon Breach.

     (a) The Seller,  the Servicer,  any  Sub-Servicer,  the Insurer,  any Trust
Officer of the Trust Collateral Agent or the Owner Trustee,  as the case may be,
shall  promptly  inform each of the other  parties and the Insurer,  in writing,
upon the discovery of any breach of the Seller's  representations and warranties
made  pursuant  to  Section  3.1 which  materially  and  adversely  affects  the
interests  of the  Noteholders  or the  Insurer in the related  Receivable  (any
Sub-Servicer  being so  obligated  under the related  Sub-Servicing  Agreement);
provided,  however,  that the failure to give any such notice shall not derogate
from any  obligations  of the Seller under this  Section 3.2. In addition,  with
respect to any  Receivables  in respect of which the Title  Documents were being
applied for on the Closing Date or the relevant  Subsequent  Transfer  Date,  as
applicable,  if such Title  Documents  have not been  received  by the  Servicer
within 180 days after the Closing  Date or such  Subsequent  Transfer  Date,  as
applicable,  the Servicer shall give the Trust Collateral Agent, the Insurer and
Seller  written notice of such fact. If the Seller does not correct or cure such
breach  (including  delivery  of such Title  Documents,  if  applicable)  by the

<PAGE>
Reporting  Date occurring  during the second full calendar  month  following the
calendar month in which the Trust  Collateral  Agent was notified or the Seller,
any  Sub-Servicer  or the  Servicer  became  aware,  if earlier,  of such breach
(including  failure to  deliver  such Title  Documents),  then the Seller  shall
promptly repurchase such Receivables from the Issuer. Any such repurchase by the
Seller  shall be in exchange for the delivery by the Seller to the Issuer of the
Purchase Amount and shall be accomplished in the manner set forth in Section 5.6
and the Trust shall  execute such  assignments  and other  documents  reasonably
requested by such Person in order to effect such  repurchase.  It is  understood
and agreed that the  obligation of the Seller to repurchase any Receivable as to
which such a breach has occurred  and is  continuing  as described  above shall,
except as  described  in the  following  paragraph,  constitute  the sole remedy
respecting such breach available to the Servicer, the Noteholders,  the Insurer,
the Issuer, the Trust Collateral Agent, the Trustee and the Owner Trustee.

     In  addition  to the  foregoing  and  notwithstanding  whether  the related
Receivable  shall have been purchased by the Seller or by the Servicer  pursuant
to Section 4.1,  the Seller  shall  indemnify  the Trust,  the Trust  Collateral
Agent, the Insurer,  and the Noteholders and any of their  respective  officers,
directors,  employees or agents against all costs,  expenses,  losses,  damages,
claims and liabilities, including reasonable fees and expenses of counsel, which
may be  asserted  against or  incurred by any of them as a result of third party
claims  arising  out of the  events  or facts  giving  rise to a  breach  of the
representation.

     (b) Pursuant to Section 2.1 and 2.2 of this Agreement,  the Seller conveyed
to the Trust all of the  Seller's  right,  title and  interest in its rights and
benefits,  but none of its obligations or burdens,  under the Purchase Agreement
including  with  respect  to  the  delivery  requirements,  representations  and
warranties and the cure or repurchase obligations of NAFI thereunder. The Seller
hereby  represents  and  warrants  to the Trust that such  assignment  is valid,
enforceable  and  effective to permit the Trust to enforce such  obligations  of
NAFI under the Purchase Agreement.

     SECTION 3.3.  Custody of Receivables  Files.  The Custodian  shall maintain
custody and possession of the  Receivable  Files as custodian and bailee for, in
accordance with and pursuant to the Custodial Agreement.

                                   ARTICLE IV

                   ADMINISTRATION AND SERVICING OF RECEIVABLES

<PAGE>
     SECTION 4.1. Duties of the Servicer.

     (a) The Servicer shall service and administer the  Receivables on behalf of
the Trust and shall have full power and  authority,  acting alone and/or through
Sub-Servicers  as provided in Section 4.2, to do any and all things which it may
deem necessary or desirable in connection with such servicing and administration
and which are consistent with this Agreement.  Consistent with the terms of this
Agreement,  the Servicer may waive, modify or vary any term of any Receivable or
consent to the  postponement  of strict  compliance with any such term or in any
manner,   grant   indulgence  to  any  Obligor  if,  in  the   Servicer's   sole
determination, which shall be conclusive and binding, such waiver, modification,
postponement  or indulgence is not materially  adverse to the Noteholders or the
Insurer;  provided  however,  that the Servicer may not permit any  modification
with respect to any  Receivable  that would change its Annual  Percentage  Rate,
defer the payment of any principal or interest  (except to the extent  permitted
by Section 4.6(a)),  reduce the outstanding principal balance (except for actual
payments of  principal),  or extend  (except to the extent  permitted by Section
4.6(a))  the  final  maturity  date on such  Receivable.  Without  limiting  the
generality of the foregoing,  the Servicer in its own name or in the name of the
Seller is hereby authorized and empowered by the Trust Collateral Agent when the
Servicer believes it appropriate in its best judgment to execute and deliver, on
behalf of the Trust, any and all instruments of satisfaction or cancellation, or
of partial or full release or discharge  and all other  comparable  instruments,
with  respect to the  Receivables  and with  respect to the  Financed  Vehicles;
provided however,  that  notwithstanding the foregoing,  the Servicer shall not,
except pursuant to an order from a court of competent  jurisdiction,  release an
Obligor from  payment of any unpaid  amount  under any  Receivable  or waive the
right to collect the unpaid balance of any Receivable  from the Obligor,  except
that the  Servicer  may  forego  collection  efforts  if the  amount  subject to
collection is de minimis and if it would forego  collection  in accordance  with
its customary procedures.  If any Receivable contains a "due-on-sale"  provision
allowing  the  holder  thereof to  accelerate  the  Receivable  upon sale of the
Financed Vehicle financed  thereunder,  the Servicer shall take reasonable steps
under the  circumstances  to enforce  such due on sale  provision  if a Financed
Vehicle is sold as soon as  practicable  after  determining  that such  Financed
Vehicle  has been  sold;  provided  however,  that  the  Servicer  shall  not be
obligated to take any legal action to enforce such provision.

     (b) The Servicer shall service and administer the  Receivables by employing
procedures  (including  collection  procedures)  and a degree of care consistent
with prudent industry standards and as are customarily  employed by servicers in
servicing and  administering  comparable motor vehicle retail  installment sales
contracts  and, to the extent more  exacting,  the degree of skill and attention
that the Servicer  exercises  from time to time with  respect to all  comparable
motor vehicle  receivables  that it services for itself or others.  The Servicer
shall take all actions (in addition to those  required to be taken by the Seller
pursuant  to this  Agreement)  that  are  necessary  or  desirable  to  maintain
continuous  perfection and first  priority of security  interests of NAFI in the
Financed Vehicles and to maintain continuous perfection of the security interest
created by each  Receivable  in the  related  Financed  Vehicle on behalf of the
Trust Collateral Agent, including,  but not limited to, using reasonable efforts
to obtain  execution  by the Obligors and the  recording,  registering,  filing,
re-recording,  re-registering  and  refiling  of all Title  Documents  (it being
understood  that  Title  Documents  have not been  and need not be  endorsed  or
delivered  to the Trust  Collateral  Agent and do not and need not  identify the
Trust  Collateral  Agent as the secured party or lienholder  with respect to the
Receivables), security agreements, financing statements, continuation statements
or other instruments as are necessary to maintain the security interests granted
by the  Obligors  under  the  respective  Receivables  on  behalf  of the  Trust

<PAGE>
Collateral Agent;  provided however, that the Servicer is not required to expend
any of its own funds to remove any security interest,  lien or other encumbrance
on any Financed  Vehicle.  The Servicer  shall not take any action to impair the
Trust's rights in any Receivable,  except to the extent allowed pursuant to this
Agreement or required by law.  The Financed  Vehicle  securing  each  Receivable
shall not be released in whole or in part from the security  interest granted by
the  Receivable,  except upon payment in full of the  Receivable or as otherwise
contemplated  herein. The Servicer shall not extend or otherwise amend the terms
of any Receivable,  except in accordance with Section 4.1(a).  Upon discovery by
either  the  Servicer  or any  Sub-Servicer  by a  Trust  Officer  of the  Trust
Collateral  Agent  of a  default  by  the  Servicer  in the  performance  of its
obligations under this Section 4.1(b) which materially and adversely affects the
interests of the Noteholders or the Insurer in the related Receivable, the party
discovering  such breach shall give prompt  written  notice thereof to the other
parties and the Insurer.  If the Servicer  does not correct or cure such default
by the Reporting Date occurring  during the second full calendar month following
the calendar  month in which the Trust  Collateral  Agent was  notified,  or the
Servicer,  the Trust  Collateral  Agent or the  Sub-Servicer  became  aware,  if
earlier,  of such  default,  then the  Servicer  shall  promptly  purchase  such
Receivable  from  the  Trust.  Any such  purchase  by the  Servicer  shall be in
exchange for the  delivery by the Servicer to the Trust of the Purchase  Amount.
Except as expressly  provided in Section 9.2 and subject to Section  10.1, it is
understood  and agreed that the  obligation  of the Servicer to  repurchase  any
Receivable  as to  which  such a  default  has  occurred  and is  continuing  as
described  above  shall  constitute  the sole  remedy  respecting  such  default
available to the Seller,  the Noteholders,  the Insurer or the Trustee on behalf
of the Noteholders.

     (c) Upon the occurrence of an Insurance Agreement Event of Default pursuant
to Section 5.01(b), (c), (d), (e) or (j) of the Insurance Agreement, the Insurer
may (so long as an Insurer  Default shall not have  occurred and be  continuing)
instruct the Trust Collateral Agent and the Servicer in writing to take or cause
to be taken or, if an Insurer  Default  shall have  occurred and be  continuing,
upon the occurrence of a Servicer  Termination Event, the Trust Collateral Agent
and the  Servicer  shall  take or cause to be taken such  action as may,  in the
opinion  of  counsel  to the  Controlling  Party,  be  necessary  to  perfect or
re-perfect  the  security  interests  in  the  Financed  Vehicles  securing  the
Receivables  in the name of the Trust by amending  the title  documents  of such
Financed  Vehicles or by such other  reasonable  means as may, in the opinion of
counsel to the Controlling  Party,  be necessary or prudent.  NAFI hereby makes,
constitutes,  and appoints,  the Trust  Collateral Agent acting through its duly
appointed  officers or any of them, its true and lawful attorney,  for it and in
its name and on its behalf,  for the sole and exclusive  purpose of  authorizing
said attorney to execute and deliver as attorney-in-fact  or otherwise,  any and
all documents and other  instruments  and to do or accomplish  all other acts or
things necessary or appropriate to show the Trust Collateral Agent as lienholder
or  secured  party on the  related  Lien  Certificates  relating  to a  Financed
Vehicle.  NAFI hereby agrees to pay all expenses  related to such  perfection or
reperfection and to take all action necessary  therefor.  In addition,  prior to
the occurrence of an Insurance Agreement Event of Default, the Controlling Party
may instruct the Trust  Collateral Agent and the Servicer to take or cause to be
taken such action as may, in the opinion of counsel to the Controlling Party, be
necessary  to  perfect or  re-perfect  the  security  interest  in the  Financed
Vehicles  underlying  the  Receivables  in the name of the Trust,  including  by
amending  the  title  documents  of such  Financed  Vehicles  or by  such  other
reasonable means as may, in the opinion of counsel to the Controlling  Party, be
necessary or prudent; provided,  however, that if the Controlling Party requests
that the title  documents  be amended  prior to the  occurrence  of an Insurance
Agreement  Event of  Default,  the  out-of-pocket  expenses  of the  Servicer in
connection  with  such  action  shall  be  reimbursed  to  the  Servicer  by the
Controlling  Party.
<PAGE>
     (d)  Subject to Section  9.5,  the  Servicer  may perform any of its duties
pursuant  to  this  Agreement,  including  those  delegated  to it by the  Trust
Collateral  Agent pursuant to this Agreement,  through Persons  appointed by the
Servicer.  Such Persons may include  affiliates  of the Servicer and may include
the Seller and its  affiliates.  Notwithstanding  any such delegation of a duty,
the Servicer shall remain  obligated and liable for the performance of such duty
as if the  Servicer  were  performing  such  duty.

     (e) Upon the execution and delivery of this  Agreement,  the Servicer shall
deliver to the Trust  Collateral  Agent and the Insurer a list of  officers  and
employees  of  the  Servicer,   upon  which  the  Trust   Collateral  Agent  may
conclusively  rely,  involved in, or  responsible  for, the  administration  and
servicing of the  Receivables,  which list shall from time to time be updated by
the  Servicer as  additional  officers  and  employees  of the  Servicer  become
involved,   or  responsible  for,  the   administration  and  servicing  of  the
Receivables  or officers or employees of the Servicer  previously  identified on
any such list become  disassociated with the administration and servicing of the
Receivables.

     (f) The Servicer may take such  actions as are  necessary to discharge  its
duties as Servicer in  accordance  with this  Agreement,  including the power to
execute and deliver on behalf of the Trust such instruments and documents as may
be customary,  necessary or desirable in connection  with the performance of the
Servicer's  duties  under  this  Agreement  (including  consents,   waivers  and
discharges  relating  to the  Receivables  and the  Financed  Vehicles  and such
instruments  or documents as may be  necessary  to effect  foreclosure  or other
conversion of the ownership of any Financed  Vehicle).  In furtherance  thereof,
the Trust  Collateral  Agent  hereby  irrevocably  appoints  the Servicer as its
attorney-in-fact, such appointment being coupled with an interest, to execute on
its  behalf  such  documents  or  instruments  as are  necessary  to effect  the
Repossession  of Financed  Vehicles,  to deliver  applicable  Receivable  Files,
Receivable  Documents  and  Title  Documents  to the  Seller  upon the sale of a
Receivable  to  the  Seller  under  this  Agreement  and to  deliver  applicable
Receivable Files,  Receivable  Documents and Title Documents upon liquidation or
final payment of a Receivable.  The Trust  Collateral  Agent,  upon receipt of a
certificate of a Servicing Official requesting the same be accepted by the Trust
Collateral  Agent and  certifying as to the reasons such documents are required,
shall furnish the Servicer with any other powers of attorney or other  documents
reasonably necessary or appropriate which the Trust Collateral Agent may legally
execute to enable the  Servicer to carry out its  servicing  and  administrative
duties  hereunder.  Neither the  Servicer  nor any of its  directors,  officers,
employees  or  agents  will be under  any  liability  to the  Trust,  the  Trust
Collateral  Agent,  the  Insurer,   any  Noteholder,   or  the  Seller  for  the
consequences  of any delay  resulting  from having to obtain such documents from
the  Trust  Collateral  Agent,   provided  that  the  Servicer   furnished  such
certificate to the Trust Collateral Agent reasonably  promptly after determining
the necessity therefor in the particular  instance.
<PAGE>

     SECTION   4.2.   Sub-Servicing   Agreements   between   Servicer   and  the
Sub-Servicers. Subject to Section 9.5, the Servicer may enter into Sub-Servicing
Agreements with one or more  Sub-Servicers for the servicing and  administration
of certain of the Receivables  with the prior written consent of the Insurer (so
long as a Insurer  Default  shall not have  occurred and be  continuing),  which
consent  shall not be  unreasonably  withheld.  The  Servicer  shall notify each
Rating Agency,  the Trust Collateral  Agent, the Backup Servicer and the Insurer
promptly after  entering into any  Sub-Servicing  Agreement.  References in this
Agreement  to actions  taken or to be taken by the  Servicer  in  servicing  the
Receivables  include actions taken or to be taken by a Sub-Servicer on behalf of
the Servicer.  Each Servicing  Agreement shall be upon such terms and conditions
as are  not  inconsistent  with  this  Agreement  and as the  Servicer  and  the
Sub-Servicer have agreed.  Each  Sub-Servicing  Agreement shall require that the
related  Sub-Servicer  acknowledge  that it is holding the  Receivables  and the
Receivable  Documents for the related Receivables coming into its possession and
any other  property  constituting  a part of the Trust  Property  held by it, in
trust,  for  the  benefit  of the  Trust  Collateral  Agent  (on  behalf  of the
Noteholders  and the Insurer).  The Servicer and a  Sub-Servicer  may enter into
amendments  thereto;  provided  however,  that any such  amendments or different
forms shall be consistent  with and not violate the provisions of this Agreement
and  provided  further  that the  Servicer  shall not  amend  any  Sub-Servicing
Agreement  without (i) with respect to a material  amendment,  the prior written
consent of the Insurer and (ii) with respect to all other amendments,  upon five
(5) days prior written notice of such amendment.

     SECTION 4.3. Obligations of the Servicer. Notwithstanding any Sub-Servicing
Agreement,  any of the  provisions of this  Agreement  relating to agreements or
arrangements  between the  Servicer or a  Sub-Servicer  or  reference to actions
taken through a Sub-Servicer or otherwise,  the Servicer shall remain  obligated
for the servicing and  administering  of the  Receivables in accordance with the
provisions  of  Section  4.1  of  this  Agreement  without  diminution  of  such
obligation  or  liability  by  virtue  of  such   Sub-Servicing   Agreements  or
arrangements or by virtue of indemnification from a Sub-Servicer and to the same
extent and under the same terms and  conditions  as if the  Servicer  alone were
servicing and administering  the Receivables.  The Servicer shall be entitled to
enter  into  any  agreement  with  a  Sub-Servicer  for  indemnification  of the
Servicer,  and nothing  contained in this Agreement  shall be deemed to limit or
modify such indemnification.

     SECTION 4.4. No Contractual  Relationship  between a Sub-Servicer and Trust
Collateral Agent or Noteholders. Any Sub-Servicing Agreement that may be entered
into  and  any  other  transactions  or  services  relating  to the  Receivables
involving a Sub-Servicer in its capacity as such and not as an originator  shall
be deemed to be between a  Sub-Servicer  and the Servicer  alone,  and the Trust
Collateral Agent, the Trust, the Trustee,  the Backup Servicer,  the Insurer and
Noteholders  shall not be deemed  parties  thereto  and  shall  have no  claims,
rights, obligations, duties or liabilities with respect to a Sub-Servicer except
as  expressly  set  forth  in  Section  4.5 or in the  applicable  Sub-Servicing
Agreement; provided that, if the Servicer is deemed terminated, the Sub-Servicer
may be terminated.  The Servicer shall promptly  provide to the Trust Collateral
Agent,  the  Backup  Servicer  and  the  Insurer  any  notice  received  from  a
Sub-Servicer.
<PAGE>

     SECTION 4.5. Assumption or Termination of Sub-Servicing  Agreement by Trust
Collateral  Agent.  In the event the Servicer  shall for any reason no longer be
the servicer of the Receivables  (including by reason of a Servicer  Termination
Event),  the Backup  Servicer or other  successor  Servicer or its designee will
thereupon  assume all of the rights and  obligations  of the Servicer  under any
Sub-Servicing  Agreements  that may have been  entered  into by the  Servicer by
giving notice of such assumption to the relevant  Sub-Servicer or  Sub-Servicers
within ten (10) Business Days of the  termination of the Servicer as servicer of
the Receivables.  Upon the giving of such notice,  the successor Servicer or its
designee shall be deemed to have assumed all of the Servicer's  interest therein
and to have replaced the Servicer as a party to the  Sub-Servicing  Agreement to
the same  extent as if the  Sub-Servicing  Agreement  had been  assigned  to the
assuming party except that the Servicer and the Sub-Servicer,  if any, shall not
thereby  be  relieved  of  any  accrued   liability  or  obligations  under  the
Sub-Servicing  Agreement and the Sub-Servicer,  if any, shall not be relieved of
any liability or  obligation  to the Servicer  that  survives the  assignment or
termination of the  Sub-Servicing  Agreement.  The Trust  Collateral Agent shall
notify each  Rating  Agency and the Insurer if any  Sub-Servicing  Agreement  is
assumed by a successor  Servicer  or its  designee.

     The Servicer shall,  upon request of the Trust  Collateral Agent but at the
expense of the Servicer, deliver to the assuming party all documents and records
relating to the Sub-Servicing  Agreement and the Receivables then being serviced
and an  accounting  of amounts  collected  and held by it and  otherwise use its
reasonable  efforts  to  effect  the  orderly  and  efficient  transfer  of  the
Sub-Servicing Agreement to the assuming party.

     SECTION 4.6. Collection of Receivable Payments.

     (a) The Servicer  shall proceed  diligently to collect all payments  called
for under the terms and  provisions  of the  Receivables,  and shall service the
Receivables in a manner  consistent with the servicing  standards and procedures
generally accepted in the financial  services industry for similar  Receivables,
and as otherwise expressly provided by this Agreement, including Section 4.1(a).
Consistent with the foregoing,  the Servicer may in its discretion (i) waive any
late  payment  charge  and (ii)  extend  the  then  current  maturity  date of a
Receivable  by two months,  once during each calendar year at the request of the
related Obligor on account of the Obligor's adverse financial circumstances that
affect the Obligor's  ability to make payments under such  Receivable;  provided
however,  that the Servicer may not so extend the then current  maturity date of
Receivable more than twice during the life of such Receivable; provided further,
that the Average  Extension  Ratio for any calendar  month,  commencing  January
1998, shall not exceed 2.5% for each January, August, September and December and
2.0% for any  other  calendar  month.  The  "Average  Extension  Ratio"  for any
calendar  month shall equal the arithmetic  average of the Extension  Ratios for
such calendar  month and the two  preceding  calendar  months (for example,  the
Average  Extension  Ratio for January 1998 will equal the arithmetic  average of
the Extension  Ratios for the months  November  1997,  December 1997 and January
1998 and will be included in the report  delivered by the  Servicer  pursuant to
Section 4.11 on or before the February  1998  Reporting  Date).  The  "Extension
Ratio"  for any  calendar  month  shall  equal the  percentage  equivalent  of a
fraction the numerator of which is the aggregate number of Receivables that have
been extended  during such calendar  month and the  denominator  of which is the
aggregate number of Receivables outstanding as of the first day of such calendar
month.
<PAGE>

     (b) Except as provided in subsection (c) below,  the Servicer shall provide
Obligors  with a monthly  statement  in order to enable  such  Obligors  to make
payments with respect to the  Receivables,  whether by check mailed  directly to
the  Post-Office  Box or by direct debit of the Obligor's bank account.  On each
Business Day,  pursuant to the Lockbox  Agreement,  the Lockbox  Processor shall
transfer any  payments  from  Obligors  received in the  Post-Office  Box to the
Lockbox  Account.  The Servicer shall cause all amounts  credited to the Lockbox
Account on account of such payments to be transferred to the Collection  Account
no later than the next Business Day after receipt of such payments.  The Lockbox
Account  shall be a demand  deposit  account held by the Lockbox Bank, or at the
request of the  Controlling  Party,  an Eligible  Bank.

     The Servicer  shall have  notified  each Obligor that makes its payments on
the  Receivables by check to make any such payments after the applicable  Cutoff
Date directly to the  Post-Office  Box (except in the case of Obligors that have
already  been  making  such  payments to the  Post-Office  Box),  and shall have
provided  each such  Obligor  with  remittance  invoices in order to enable such
Obligors to make such payments  directly to the Post-Office Box for deposit into
the Lockbox Account,  and the Servicer will continue,  not less often than every
three months, to so notify those Obligors who have failed to may payments to the
Post-Office  Box.  The  Servicer on behalf of the Trust  Collateral  Agent shall
establish and maintain the Post-Office Box at a United States Post Office branch
for the benefit of the Noteholders and the Insurer.

     (c) In the event  that a  Sub-Servicer  is  appointed  in  accordance  with
Section  9.5,  the  Servicer  shall  cause  the   Sub-Servicer   to  maintain  a
Sub-Servicer  Account  to which  Obligors  shall  have  been  directed  to remit
payments in respect of the  Receivables.  The Servicer  shall instruct (or shall
cause the  Sub-Servicer  to  instruct)  all Obligors to make all payments due in
respect of the  Receivables to the  Sub-Servicer  Account.  The Servicer  shall,
pursuant  to the  Sub-Servicing  Agreement,  cause the  Sub-Servicer  to use any
amounts other than collections in respect of motor vehicle financing obligations
serviced by the  Sub-Servicer.  The Servicer shall cause the Sub-Servicer to use
its best efforts to transfer to the  Collection  Account all collected  funds on
deposit in the  Sub-Servicer  Account that constitute part of the Trust Property
within one Business  Day,  and in any event within two Business  Days of receipt
thereof.  If a  Sub-Servicer  Account is terminated  for any reason prior to the
establishment  of,  and  notification  to  Obligors  to  remit  payments  to,  a
replacement  servicing  account  comparable to such  Sub-Servicer  Account,  the
Servicer shall promptly,  and in any event within 30 days of termination of such
Sub-Servicer Account or comparable account, establish a Lockbox Account pursuant
to a Lockbox  Agreement and notify all Obligors to remit  payments in respect of
the Receivables in accordance with subsection (b) above.

     (d) If  the  Servicer,  the  Seller,  NAFI  or  any  Sub-Servicer  receives
collections  under or other  payments in respect of the  Receivables,  each such
Person  shall as soon as  practicable,  but no  later  than  two  Business  Days
following receipt of such item by such Person, cause such payment to be remitted
to the Trust  Collateral  Agent for deposit to the  Collection  Account.  If the
Servicer determines that any amount that is not a part of the Trust Property has
been  deposited in any Trust Account,  the Servicer shall promptly  instruct the
Trust  Collateral  Agent by facsimile (with prompt  telephone  confirmation)  to
segregate such amount,  and shall therein direct the Trust  Collateral  Agent to
turn over such amounts to the Person entitled  thereto within two Business Days.
A copy of any such direction  shall be delivered by the Servicer to the Insurer.
<PAGE>

     (e) Notwithstanding any Lockbox Agreement, or any of the provisions of this
Agreement relating to a Lockbox Agreement,  a Lockbox Bank or a Lockbox Account,
the Servicer shall remain obligated and liable to the Trust Collateral Agent and
the Noteholders for servicing and  administering the Receivables and the rest of
the Trust Property in accordance  with the provisions of this Agreement  without
diminution  of such  obligations  or  liability  by  virtue  thereof,  provided,
however,  that the foregoing  shall not apply to any Backup Servicer for so long
as a Lockbox  Bank is  performing  its  obligations  pursuant  to the terms of a
Lockbox  Agreement.

     In the event of a termination of the Servicer, the Backup Servicer or other
successor  Servicer  shall  assume  all of the  rights  and  obligations  of the
outgoing  Servicer under the Lockbox  Agreement  subject to the terms hereof. In
such event,  the Backup  Servicer or the successor  Servicer  shall be deemed to
have  assumed  all of the  outgoing  Servicer's  interest  therein  and to  have
replaced the outgoing  Servicer as a party to each such Lockbox Agreement to the
same extent as if such  Lockbox  Agreement  had been  assigned to the  successor
Servicer, except that the outgoing Servicer shall not thereby be relieved of any
liability or  obligations  on the part of the  outgoing  Servicer to the Lockbox
Bank under such Lockbox Agreement.  The outgoing Servicer shall, upon request of
the Trust Collateral Agent, but at the expense of the outgoing Servicer, deliver
to the  successor  Servicer  all  documents  and  records  relating to each such
Lockbox Agreement and an accounting of amounts collected and held by the Lockbox
Bank and  otherwise  use its best  efforts to effect the orderly  and  efficient
transfer of any Lockbox Agreement to the successor  Servicer.  In the event that
the  Insurer  (so long as an  Insurer  Default  shall not have  occurred  and be
continuing) or a Note Majority (if an Insurer Default shall have occurred and be
continuing)  elects to change the  identity of the Lockbox  Bank,  the  outgoing
Servicer,  at its  expense,  shall  cause the Lockbox  Bank to  deliver,  at the
direction of the Insurer (so long as an Insurer  Default shall not have occurred
and be  continuing)  or a Security  Majority (if an Insurer  Default  shall have
occurred and be continuing) to the Trust Collateral Agent or a successor Lockbox
Bank, all documents and records relating to the Receivables and all amounts held
(or  thereafter  received) by the Lockbox Bank  (together  with an accounting of
such amounts) and shall otherwise use its best efforts to effect the orderly and
efficient transfer of the lockbox arrangements and the Servicer shall notify the
Obligors to make payments to the Lockbox established by the successor.

     SECTION  4.7.  Maintenance  of  Insurance.   The  Servicer  shall  use  its
reasonable  efforts to cause each  Obligor to maintain  on the related  Financed
Vehicle a comprehensive  and collision policy providing  coverage at least equal
to the lesser of (i) the actual cash value of such Financed Vehicle and (ii) the
unpaid balance owing on the related  Receivable,  less Unearned Finance Charges;
provided  however,  that the  Servicer  shall not be obligated to expend its own
funds to pay any  insurance  premiums  or obtain or  maintain  any such  policy.
Pursuant to Section 4.6 any amounts  collected  by the  Servicer  under any such
policies  (other than amounts to be applied to the  restoration or repair of the
related Financed  Vehicles or amounts released to the Obligor in accordance with
the Servicer's normal servicing procedures) shall be deposited in the Collection
Account.  All policies required by this paragraph shall be endorsed with clauses
providing for loss payable to the Servicer or the relevant  Sub-Servicer and its
successors  and assigns.  Servicer  shall  maintain and keep in place a vendor's
single interest insurance policy.
<PAGE>

     SECTION 4.8.  Realization upon Defaulted  Receivables.

     (a) In the event that a Receivable  becomes and continues to be a Defaulted
Receivable,  the Servicer shall take all  reasonable and lawful steps  necessary
for Repossession;  provided however, that the Servicer shall not be obligated to
institute any action for  Repossession  through judicial  proceedings  unless it
determines in its good faith judgment,  which  determination  will be conclusive
and binding,  that  Liquidation  Proceeds  that would be realized in  connection
therewith or amounts  payable  pursuant to the last sentence of this Section 4.8
would be sufficient for the reimbursement in full of its out-of-pocket  expenses
pursuant to this Agreement.  In connection with such Repossession,  the Servicer
shall  follow such  practices  and  procedures  required by Section 4.1 and make
advances of its own funds for any out-of-pocket  expenses incurred. The Servicer
shall be reimbursed for Liquidation  Expenses (including  advances) by retention
of the required  reimbursement from the first Liquidation Proceeds received with
respect to such Defaulted Receivable.  The Servicer shall be entitled to receive
the following  amounts with respect to any  Receivable  the Obligor of which has
filed bankruptcy or against whom a petition for involuntary  bankruptcy has been
filed:  a one time fee of $200 in respect of those  Receivables  not referred to
outside  legal  counsel,  or,  in the  case of  those  Receivables  that  are so
referred,  reimbursement  of the  reasonable  fees and expenses of outside legal
counsel,  if their  retention  was necessary in the  reasonable  judgment of the
Servicer.

     (b) In the event the Servicer delivers any Repossessed Financed Vehicle for
sale to a Dealer,  it agrees  that  prior to such  delivery,  it shall make such
filings and effect such notices as are necessary  under Section  9-114(1) of the
New York UCC (or  comparable  section  of the UCC of any  applicable  state)  to
preserve its ownership  interest (or security  interest,  as the case may be) in
any such  Repossessed  Financed  Vehicle.  The Servicer  agrees that at any time
after 45 days  from  the  Closing  Date the  aggregate  number  of  unliquidated
Repossessed  Financed Vehicles delivered for sale to all Dealers with respect to
which the actions referred to in the prior sentence have not been effected shall
not exceed the lesser of (i) 35 Repossessed Financed Vehicles or (ii) 20% of the
aggregate number of unliquidated  Repossessed  Financed  Vehicles.  The Servicer
further agrees that the number of  unliquidated  Repossessed  Financed  Vehicles
delivered for sale to any individual  Dealer shall at no time exceed 35.

     SECTION 4.9. Total Servicing Fee;  Payment of Certain Expenses by Servicer.
On each Distribution  Date, the Servicer shall be entitled to receive out of the
Collection  Account the Base  Servicing Fee and any  Supplemental  Servicing Fee
(together,  the "Servicing  Fee") for the related Due Period pursuant to Section
5.7.  The  Servicer  shall be  required  to pay all  expenses  incurred by it in
connection with its activities under this Agreement  (including taxes imposed on
the  Servicer,  fees and  expenses  of any  Sub-Servicer,  expenses  incurred in
connection with distributions and reports made by the Servicer to Noteholders or
the Insurer  and all other fees and  expenses  of the Owner  Trustee,  the Trust
Collateral  Agent or the Trustee,  except  taxes levied or assessed  against the
Trust, and claims against the Trust in respect of  indemnification,  which taxes
and claims in respect of indemnification  against the Trust are expressly stated
to be for the  account  of NAFI)  and  shall not be  entitled  to  reimbursement
therefor except as specifically  provided  herein.  The Servicer shall be liable
for the fees,  charges and expenses of the Owner Trustee,  the Trust  Collateral
Agent, the Trustee,  the Custodian,  the Collateral Agent, the Lockbox Bank, any
Sub-Servicer  and  their  respective  agents  (and any fees  under  the  Lockbox
Agreement).
<PAGE>

     SECTION 4.10. [Reserved]

     SECTION  4.11.  Reports.

     (a) Not later than the Reporting  Date,  the Servicer  shall forward to the
Trust Collateral  Agent, the Trustee,  the Backup Servicer,  each Rating Agency,
the Insurer and the Seller a statement substantially in the form attached hereto
as  Exhibit  B (as such  form may be  modified  from  time to time by  agreement
between  the Trust  Collateral  Agent and the  Servicer  with the prior  written
consent of the Insurer), certified by an officer of the Servicer. In addition to
the information required by Exhibit B, the Servicer shall include in the copy of
such  statement  delivered  to the Insurer (i) the  Delinquency  Ratio,  Average
Delinquency  Ratio,  Default Rate,  Average Default Rate, Net Loss Rate, Average
Net Loss Rate,  Average  Extension  Ratio and Extension Ratio for such Reporting
Date,  (ii) whether any Trigger  Event has occurred as of such  Reporting  Date,
(iii) whether any Trigger  Event that may have occurred as of a prior  Reporting
Date is  deemed  cured  as of such  Reporting  Date,  and  (iv)  whether  to the
knowledge of the Servicer an Insurance Agreement Event of Default has occurred.

     (b) On the first  Business  Day after each  Determination  Date,  the Trust
Collateral  Agent shall forward by  telecopier to the Servicer,  the Insurer and
the Seller a statement (and shall also mail a copy to the Servicer,  the Insurer
and the Seller)  setting forth the amount,  if any, on deposit in the Collection
Account,   the  Distribution   Account,   the  Pre-Funding   Account,  the  Note
Distribution  Account  and the  Pre-Funding  Period  Reserve  Account as of such
Determination  Date. Not later than the close of business on the fourth Business
Day prior to each Distribution Date, the Trust Collateral Agent shall forward by
telecopier  to the  Collateral  Agent and the  Insurer  a copy of the  statement
required to be delivered to  Noteholders on such  Distribution  Date pursuant to
Section  5.10  prepared  assuming  that the Insurer  will not exercise its right
under  Section  5.11 and based on  information  set forth by the Servicer in the
statement  substantially  in the form of  Exhibit B hereto.  Not later than five
days after each Determination  Date, the Trust Collateral Agent shall forward to
the Servicer,  the Insurer and the Seller a statement showing,  for the previous
Distribution  Date, the aggregate of withdrawals from the  Distribution  Account
and the  withdrawals and deposits to the Spread  Account.

     SECTION  4.12.  Annual  Statement  as to  Compliance,  Notice  of  Servicer
Termination Event.

     (a) The  Servicer  shall  deliver or cause to be  delivered  to each Rating
Agency, the Trustee,  the Owner Trustee,  the Trust Collateral Agent, the Backup
Servicer and the Insurer on or before April 30 (or 120 days after the end of the
Servicer's  fiscal year, if other than  December 31) of each year,  beginning on
April 30, 1998, an Officer's  Certificate  signed by any responsible  officer of
the Servicer,  or such  Eligible  Sub-Servicer  who is performing  the servicing
duties of the Servicer,  dated as of December 31 (or other  applicable  date) of
the immediately  preceding year,  stating that (i) a review of the activities of
the Servicer  during the preceding  calendar year and of performance  under this
Agreement has been made under such  officer's  supervision,  (ii) to the best of
such officer's  knowledge,  based on such review, the Servicer has fulfilled all
its obligations under this Agreement throughout such year, or, if there has been
a  default  in the  fulfillment  of any such  obligation,  specifying  each such
default known to such officer and the nature and status thereof and (iii) to the
best  of  such  officer's   knowledge,   each  Sub-Servicer  has  fulfilled  its
obligations under its Sub-Servicing  Agreement in all material  respects,  or if
there  has been a  material  default  in the  fulfillment  of such  obligations,
specifying  such  default  known to such  employee  and the  nature  and  status
thereof.
<PAGE>

     (b) The Servicer shall deliver to the Trust Collateral  Agent, the Insurer,
the Backup  Servicer,  the  Noteholders  and each Rating Agency,  promptly after
having obtained knowledge thereof,  but in no event later than two Business Days
thereafter,  written notice in an Officer's  Certificate of any event which with
the  giving  of  notice  or lapse of time,  or  both,  would  become a  Servicer
Termination Event under Section 10.1.

     SECTION 4.13. Annual Independent Accountants' Report.

     (a)  The  Servicer  shall,  at its  expense,  cause  a firm  of  nationally
recognized   independent   certified  public   accountants   (the   "Independent
Accountants"),  who may also render  other  services  to the  Servicer or to the
Seller,  to deliver to the  Trustee,  the Owner  Trustee,  the Trust  Collateral
Agent,  the Backup  Servicer and the Insurer,  on or before March 30 (or 90 days
after the end of the Servicer's  fiscal year, if other than December 31) of each
year,  beginning on March 30, 1998,  with respect to the twelve months ended the
immediately  preceding  December  31 (or other  applicable  date) (or such other
period  as  shall  have  elapsed  from  the  Closing  Date  to the  date of such
certificate),  a statement (the "Accountants' Report") addressed to the Board of
Directors  of the  Servicer,  to the  Trustee,  the  Owner  Trustee,  the  Trust
Collateral  Agent and to the  Insurer,  to the effect that such firm has audited
the books  and  records  of the  Servicer  and that  such  audit (1) was made in
accordance with generally accepted auditing standards,  and accordingly included
such tests of the accounting records and such other auditing  procedures as such
firm considered  necessary in the circumstances;  (2) included an examination of
documents and records relating to the servicing of automobile  installment sales
contracts under pooling and servicing  agreements  substantially  similar one to
another (such  statement to have attached  thereto a schedule  setting forth the
servicing agreements covered thereby, including this Agreement); (3) included an
examination of the delinquency  and loss  statistics  relating to the Servicer's
portfolio of automobile installment sales contracts; and (4) except as described
in the statement,  disclosed no exceptions or errors in the records  relating to
automobile  and light  truck  loans  serviced  for  others  that,  in the firm's
opinion, generally accepted auditing standards requires such firm to report. The
Accountants'  Report shall further  state that (1) a review in  accordance  with
agreed  upon  procedures  was  made  of  three  randomly   selected   Servicer's
Certificates for the Trust; (2) except as disclosed in the Report, no exceptions
or errors in the  Servicer's  Certificates  so examined were found;  and (3) the
delinquency and loss  information  relating to the Receivables  contained in the
Servicer Certificates were found to be accurate.

     (b)  The  Accountants'   Report  shall  also  indicate  that  the  firm  is
independent  of the Seller and the  Servicer  within the  meaning of the Code of
Professional  Ethics of the American Institute of Certified Public  Accountants.
<PAGE>

(c) A copy of the  Accountant's  Report may be obtained by any  Noteholder  by a
request in writing to the Trust  Collateral  Agent  addressed  to its  Corporate
Trust Office.  

     SECTION 4.14.  Access to Certain  Documentation  and Information  Regarding
Receivables.  The  Servicer  shall  provide  to  representatives  of  the  Trust
Collateral  Agent, the Backup Servicer and the Insurer  reasonable access to the
documentation  regarding the  Receivables.  Each of the Seller and Servicer will
permit any authorized representative or agent designated by the Insurer to visit
and inspect any of the properties of the Seller or Servicer, as the case may be,
to examine the corporate books and financial  records of the Seller or Servicer,
as the case may be, its  records  relating to the  Receivables,  and make copies
thereof or extracts therefrom and to discuss the affairs, finances, and accounts
of the Seller or Servicer,  as the case may be, with its principal officers,  as
applicable,  and  its  independent  accountants.  Any  expense  incident  to the
exercise by the Insurer of any right under this  Section  4.14 shall be borne by
NAFI,  so long as NAFI is the  Servicer.  In each  case,  such  access  shall be
afforded  without  charge but only upon  reasonable  request  and during  normal
business hours.

     SECTION 4.15.  Monthly Tape. (a) On or before the fourth  Business Day, but
in no event later than the fifth calendar day, of each month,  the Servicer will
deliver to the Trust  Collateral  Agent,  the Insurer and the Backup  Servicer a
computer tape and a diskette (or any other electronic transmission acceptable to
the Trust  Collateral  Agent,  the Insurer and the Backup  Servicer) in a format
acceptable to the Trust Collateral Agent and the Backup Servicer  containing the
information  with respect to the  Receivables as of the preceding  Determination
Date necessary for  preparation of the  Servicer's  Certificate  relating to the
immediately  succeeding  Determination  Date  and  necessary  to  determine  the
application of collections as provided in Section 5.4.

     SECTION 4.16.  Retention and  Termination of Servicer.  The Servicer hereby
covenants  and agrees to act as such under the  Agreement  for an initial  term,
commencing on the Closing Date and ending on March 31, 1998, which term shall be
extendible  by the  Insurer  for  successive  quarterly  terms  ending  on  each
successive  March 31, June 30,  September  30 and  December 31 (or,  pursuant to
revocable  written standing  instructions  from time to time to the Servicer and
the Trust Collateral Agent, for any specified number of terms greater than one),
until the  termination  of the Trust.  Each such notice  (including  each notice
pursuant to standing instructions, which shall be deemed delivered at the end of
successive  quarterly terms for so long as such  instructions  are in effect) (a
"Servicer  Extension  Notice")  shall be  delivered  by the Insurer to the Trust
Collateral  Agent and the Servicer.  The Servicer  hereby agrees that, as of the
date  hereof and upon its receipt of any such  Servicer  Extension  Notice,  the
Servicer  shall become bound,  for the initial term beginning on the date hereof
and for the  duration  of the term  covered by such  Notice,  to continue as the
Servicer  subject  to and in  accordance  with  the  other  provisions  of  this
Agreement.  Until such time as an Insurer  Default  shall have  occurred  and be
continuing,  the Trust  Collateral  Agent agrees that,  as of the  fifteenth day
prior  to the  last  day of any term of the  Servicer,  if in  which  the  Trust
Collateral Agent shall not have received any Servicer  Extension Notice from the
Insurer,  the Trust  Collateral Agent will,  within five days  thereafter,  give
written  notice of such  non-receipt  to the  Insurer,  and the Servicer and the
Servicer's  term shall not be  extended  unless a Servicer  Extension  Notice is
received  on or  before  the  last day of such  term.  
<PAGE>

     SECTION 4.17. Custodial  Arrangement.  The Custodian shall maintain custody
and  possession  of the  Receivable  Files as custodian and bailee in accordance
with and pursuant to the Custodial Agreement. The Servicer hereby assigns all of
its right, title and interest in, but none of its obligators thereunder,  and to
such  Custodial  Agreement  to the Trust  Collateral  Agent.  To the  extent the
Servicer  receives  any notices  with respect to the  Custodial  Agreement,  the
Servicer  will forward a copy of such notice to the Trust  Collateral  Agent and
the Insurer.

                                   ARTICLE V

                         TRUST ACCOUNTS; DISTRIBUTIONS;
                            STATEMENTS TO NOTEHOLDERS

     SECTION 5.1. Establishment of Trust Accounts.

     (a) (i) The Trust  Collateral  Agent,  on behalf  of the  Noteholders,  the
Certificateholders and the Insurer, shall establish and maintain in its own name
an Eligible  Deposit Account (the "Collection  Account"),  bearing a designation
clearly  indicating that the funds deposited therein are held for the benefit of
the Trust Collateral Agent on behalf of the Noteholders,  the Certificateholders
and the Insurer.  The Collection Account shall initially be established with the
Trust Collateral Agent.

          (ii) The Trust Collateral  Agent, on behalf of the Noteholders and the
     Insurer,  shall establish and maintain in its own name an Eligible  Deposit
     Account (the "Note Distribution  Account"),  bearing a designation  clearly
     indicating that the funds deposited therein are held for the benefit of the
     Trust  Collateral  Agent on behalf of the Noteholders and the Insurer.  The
     Note  Distribution  Account shall  initially be established  with the Trust
     Collateral Agent.

          (iii) The Trust Collateral Agent, on behalf of the Noteholders and the
     Insurer,  shall establish and maintain in its own name an Eligible  Deposit
     Account  (the  "Pre-Funding   Account"),   bearing  a  designation  clearly
     indicating that the funds deposited therein are held for the benefit of the
     Trust  Collateral  Agent on behalf of the Noteholders and the Insurer.  The
     Pre-Funding   Account  shall  initially  be  established   with  the  Trust
     Collateral  Agent.  

          (iv) The Trust  Collateral  Agent, on behalf of the  Noteholders,  the
     Certificateholders and the Insurer, shall establish and maintain in its own
     name an Eligible Deposit Account (the  "Distribution  Account"),  bearing a
     designation  clearly  indicating that the funds deposited  therein are held
     for the benefit of the Trust Collateral Agent on behalf of the Noteholders,
     the   Certificateholders   and  Insurer.  The  Distribution  Account  shall
     initially  be  established  with the  Trust  Collateral  Agent.

     (b) The Trust Collateral Agent shall deposit the following amounts into the
Collection Account upon receipt:  (i) all amounts withdrawn by the Servicer from
the Lockbox Account or by a Sub-Servicer  from the Sub-Servicer  Account and all
amounts  received by the  Servicer,  the Seller,  NAFI or any  Sub-Servicer  and
transferred to the Trustee pursuant to Section 4.6(d);  (ii) the Purchase Amount
received in respect of any Purchased  Receivables pursuant to Sections 2,2, 2.5,
3.2 and 4.1 hereof;  (iii) all income and gain from  investments of funds in the
Collection  Account;  and  (iv) all  Liquidation  Proceeds  (net of  Liquidation
Expenses  retained  by the  Servicer or  Sub-Servicer)  and other  amounts  with
respect to the Trust Property, if any, received from the Seller, the Servicer or
any Sub-Servicer.
<PAGE>

     (c) On each  Distribution  Date, the Trust  Collateral  Agent shall, at the
written  direction of the  Servicer,  withdraw from the  Collection  Account and
deposit in the  Distribution  Account  the  amount on deposit in the  Collection
Account as of the close of  business on the  related  Determination  Date (other
than any pay-ahead amounts, as provided in Section 5.4) and any amount deposited
to the Collection Account in respect of Purchased Receivables on or prior to the
related Reporting Date and subsequent to the preceding  Reporting Date, less the
sum  of (i)  the  Supplemental  Servicing  Fee  collected  with  respect  to the
Receivables on deposit in the Collection Account as of such Determination  Date,
(ii) any income and gain on investments of deposits in the Collection Account as
of such  Determination  Date, (iii) any collection or other amounts deposited to
the  Collection  Account  in  respect of  Purchased  Receivables  other than the
Purchase Amounts.  In addition,  on each Distribution Date, the Trust Collateral
Agent shall, in accordance with the written direction of the Servicer,  withdraw
from the Collection  Account and shall pay (i) to the Seller any income and gain
on investments  then on deposit in the  Collection  Account and all late payment
fees then on deposit  in the  Collection  Account  and (ii) to pay to the Seller
with  respect to each  Purchased  Receivable  or  property  acquired  in respect
thereof,  all amounts  received  thereon and not  distributed as of, or received
after, the date on which the related  Principal  Balance or Purchase Amount (or,
in the case of a  retransfer  pursuant  to Section  11.1,  the  purchase  amount
required therein) is determined.  In the event the Servicer, any Sub-Servicer or
the Trust Collateral Agent shall deposit in the Collection Account any amount in
error  and such  amount  is not  required  to be  deposited  therein,  the Trust
Collateral  Agent may withdraw at any time,  on its own behalf if the  erroneous
deposit was made by the Trust  Collateral Agent and on behalf of the Servicer or
Sub-Servicer  if the erroneous  deposit was made by the Servicer or Sub-Servicer
promptly after receipt of an Officer's  Certificate setting forth the reason for
such withdrawal of such amount from the Collection Account, any provision herein
to the contrary notwithstanding.

     (d) Funds on deposit in the Collection  Account,  the Pre-Funding  Account,
the Note  Distribution  Account,  the  Distribution  Account and the Pre-Funding
Period Reserve Account (collectively, the "Trust Accounts") shall be invested by
the Trust Collateral Agent (or any custodian with respect to funds on deposit in
any such  account) in Eligible  Investments  selected in writing by the Servicer
(pursuant to standing  instructions or otherwise) which,  absent any instruction
shall be the  investments  specified in clause (d) of the definition of Eligible
Investments set forth herein. Other than as permitted by the Rating Agencies and
the Insurer,  funds on deposit in any Trust Account  other than the  Pre-Funding
Period  Reserve  Account  shall be invested in  Eligible  Investments  that will
mature so that such  funds will be  available  at the close of  business  on the
Business Day  immediately  preceding  the  following  Distribution  Date.  Funds
deposited in the Pre-Funding  Account shall be invested by the Trust  Collateral
Agent pursuant to written  instructions from the Seller in Eligible  Investments
that mature no later than the  Business  Day next  preceding  the earlier of the
date on which such funds are  expected  to be needed and the  Distribution  Date
next  succeeding  the  date  of  such  investment  (or  on  such  date  or  such
Distribution  Date,  as the  case  may be,  if such  Eligible  Investment  is an
obligation of the institution  maintaining the Pre-Funding Account), and no such
investment  shall be sold  prior to its  maturity.  Funds  deposited  in a Trust
Account on the day immediately  preceding a Distribution  Date upon the maturity
of any  Eligible  Investments  are not  required to be invested  overnight.  All
Eligible  Investments will be held to maturity.
<PAGE>

     (e) All investment earnings of moneys deposited in the Trust Accounts shall
be deposited (or caused to be deposited)  by the Trust  Collateral  Agent in the
Collection  Account  no later than the close of  business  on the  Business  Day
immediately preceding the related Distribution Date, and any loss resulting from
such investments shall be charged to the Collection Account.  The Servicer shall
not direct the Trust  Collateral  Agent to make any investment of any funds held
in any of the Trust Accounts unless the security  interest granted and perfected
in such account will continue to be perfected in such investment, in either case
without any further action by any Person,  and, in connection with any direction
to the Trust  Collateral Agent to make any such  investment,  if necessary,  the
Servicer  shall deliver to the Trust  Collateral  Agent an Opinion of Counsel to
such effect upon which the Trust Collateral Agent may conclusively rely.

     (f) The  Trust  Collateral  Agent  shall  not in any way be held  liable by
reason of any insufficiency in any of the Trust Accounts resulting from any loss
on any Eligible  Investment  included therein except for losses  attributable to
the Trust  Collateral  Agent's  negligence  or bad faith or its  failure to make
payments on such Eligible  Investments  issued by the Trust Collateral Agent, in
its commercial  capacity as principal obligor and not as trustee,  in accordance
with their terms.

     (g) If (i) the Servicer shall have failed to give investment directions for
any funds on deposit in the Trust Accounts to the Trust Collateral Agent by 2:00
p.m.  Eastern  Time (or such other time as may be agreed by the Issuer and Trust
Collateral  Agent) on any  Business  Day;  or (ii) a Default or Event of Default
shall have  occurred and be  continuing  with respect to the Notes but the Notes
shall not have been declared due and payable,  or, if such Notes shall have been
declared due and payable  following an Event of Default and amounts collected or
receivable  from the Trust  Property are being  applied as if there had not been
such a declaration; then the Trust Collateral Agent shall, to the fullest extent
practicable,  invest and  reinvest  funds in the Trust  Accounts  in one or more
Eligible  Investments  pursuant  to  paragraph  (d)  above.

     (h) (i) The Trust  Collateral  Agent  shall  possess  all right,  title and
interest in all funds on deposit from time to time in the Trust  Accounts and in
all  proceeds  thereof  (excluding  all  Investment  Earnings on the  Collection
Account) and all such funds,  investments,  proceeds and income shall be part of
the Owner Trust Estate.  Except as otherwise provided herein, the Trust Accounts
shall be under the sole dominion and control of the Trust  Collateral  Agent for
the benefit of the  Noteholders  and the  Insurer.  If, at any time,  any of the
Trust Accounts ceases to be an Eligible  Deposit  Account,  the Trust Collateral
Agent (or the Servicer on its behalf)  shall within five  Business Days (or such
longer  period as to which each  Rating  Agency  and the  Insurer  may  consent)
establish a new Trust Account as an Eligible  Deposit Account and shall transfer
any cash and/or any  investments to such new Trust Account.  In connection  with
the  foregoing,  the Servicer  agrees  that,  in the event that any of the Trust
Accounts are not accounts with the Trust  Collateral  Agent,  the Servicer shall
notify the Trust  Collateral  Agent in writing  promptly  upon any of such Trust
Accounts ceasing to be an Eligible  Deposit  Account.  
<PAGE>

     With respect to the Trust Account Property:

               (A) any Trust Account  Property that is held in deposit  accounts
          shall be held solely in the Eligible Deposit Accounts;  and, except as
          otherwise provided herein, each such Eligible Deposit Account shall be
          subject to the exclusive  custody and control of the Trust  Collateral
          Agent,  and the Trust  Collateral  Agent  shall  have  sole  signature
          authority with respect thereto;

               (B) any Trust  Account  Property that  constitutes  an instrument
          within  the  meaning  of  Section  9-105(1)(I)  of  the  UCC  and  are
          susceptible  of  physical  delivery  shall be  delivered  to the Trust
          Collateral Agent in accordance with paragraph (a) of the definition of
          "Delivery" and shall be held, pending maturity or disposition,  solely
          by the Trust  Collateral  Agent or its  nominee  or  custodian  acting
          solely for the Trust Collateral  Agent;

               (C) any Trust Account  Property that  constitutes a  certificated
          security  (as  defined  in  Section  8-102(a)(4)  of the UCC) shall be
          delivered to the Trust  Collateral  Agent in accordance with paragraph
          (b) of the  definition  of  "Delivery"  and  shall  be  held,  pending
          maturity or disposition,  solely by the Trust Collateral Agent or by a
          securities  intermediary  (as defined in Section  8-102(a)(14)  of the
          UCC)  acting on behalf of the Trust  Collateral  Agent;

               (D) any Trust Account Property that is a book-entry security held
          through  the Federal  Reserve  System  pursuant to Federal  book-entry
          regulations shall be delivered in accordance with paragraph (c) of the
          definition  of  "Delivery"  and  shall  be  maintained  by  the  Trust
          Collateral Agent,  pending maturity or disposition,  through continued
          book-entry registration of such Trust Account Property as described in
          such  paragraph;  and

               (E)  any  Trust  Account  Property  that  is  an  "uncertificated
          security"  under  Article  8 of the UCC and  that is not  governed  by
          clause (D) above shall be delivered to the Trust  Collateral  Agent in
          accordance  with  paragraph (d) of the  definition  of "Delivery"  and
          shall be maintained by the Trust Collateral Agent, pending maturity or
          disposition,  through  continued  registration of the Trust Collateral
          Agent's (or its nominee's) ownership of such security or the agreement
          of the issuer  thereof to comply  with the  instructions  of the Trust
          Collateral  Agent as described in such clause (D) pending  maturity or
          disposition;

               (F) any Trust Account  Property that is a "security  entitlement"
          (as  defined  in  Section  8-102(a)(17)  of  the  UCC),  a  securities
          intermediary (i) credits,  accepts for credit or is required to credit
          a "financial asset" (as defined in Section  8-102(a)(9) of the UCC) to
          the Trust Collateral Agent's securities account,  (ii) has agreed that
          it will comply with the entitlement  orders described in clause (f) of
          the  definition of  "Delivery" or (iii)  confirms the purchase of such
          Trust  Account  Property,  and  makes  such  entries  on its books and
          records,  in the manner and as  described in such clause (f), and such
          credit,  agreement  or entries  are  maintained  pending  maturity  or
          disposition.
<PAGE>

     SECTION 5.2. Pre-Funding Period Reserve Account.

     (a) The Servicer  shall cause the Trust  Collateral  Agent to establish and
maintain an Eligible Deposit Account (the "Pre-Funding  Period Reserve Account")
with the Trust Collateral Agent,  bearing a designation  clearly indicating that
the funds deposited therein are held in trust for the benefit of the Noteholders
and the Insurer.

     On or prior to the Closing  Date,  the Seller shall deposit an amount equal
to the  Pre-Funding  Period Reserve Account Initial Deposit into the Pre-Funding
Period Reserve Account.

          (b)  (i)  On the  Distribution  Dates  occurring  on or  prior  to the
     Distribution  Date next succeeding  termination of the Pre-Funding  Period,
     the  Trust  Collateral  Agent  shall,  in  accordance  with the  Servicer's
     Certificate,  withdraw  from the  Pre-Funding  Period  Reserve  Account the
     Monthly  Pre-Funding  Period Reserve Amount for such  Distribution Date and
     deposit  such  amount in the  Collection  Account  as further  provided  in
     Section 5.7.

          (ii)  On  the  Distribution   Dates  occurring  on  or  prior  to  the
     Distribution  Date next succeeding  termination of the Pre-Funding  Period,
     Servicer shall instruct the Trust  Collateral  Agent in writing to withdraw
     from the  Pre-Funding  Period Reserve Account and pay to the Seller on such
     Distribution  Date an amount equal to the amount of funds on deposit in the
     Pre-Funding  Period  Reserve  Account  (after giving effect to any required
     transfer pursuant to the preceding clause (i) on such Distribution Date) in
     excess of the Required Reserve Amount for such Distribution  Date. Upon any
     such distributions to the Seller, the Noteholders and the Insurer will have
     no further rights in, or claims to, such amounts.

          (iii) Any amounts remaining in the Pre-Funding  Period Reserve Account
     on the  Distribution  Date next  succeeding  termination of the Pre-Funding
     Period after taking into account the transfer pursuant to Section 5.7(a)(i)
     or (ii) shall be remitted by the Trust Collateral Agent to the Seller. Upon
     any such  distributions to the Seller, the Noteholders and the Insurer will
     have no further rights in, or claims to, such amounts.

     SECTION 5.3. Certain  Reimbursements to the Servicer.  The Servicer will be
entitled to be reimbursed from amounts on deposit in the Collection Account with
respect to a Due Period  for  amounts  previously  deposited  in the  Collection
Account but later  determined  by the Servicer to have resulted from mistaken or
postings or checks returned for insufficient  funds. The amount to be reimbursed
hereunder  shall  be paid  to the  Servicer  on the  related  Distribution  Date
pursuant to Section 5.7(b)(i) upon certification by the Servicer of such amounts
and the  provision of such  information  to the Trust  Collateral  Agent and the
Insurer as may be necessary in the opinion of the Insurer to verify the accuracy
of such  certification.  In the event that the Insurer has not received evidence
satisfactory to it of the Servicer's  entitlement to  reimbursement  pursuant to
this Section,  the Insurer shall (unless an Insurer  Default shall have occurred
<PAGE>

and be  continuing)  give the  Trust  Collateral  Agent  written  notice to such
effect,  following  receipt of which the Trust Collateral Agent shall not make a
distribution  to the Servicer in respect of such amount pursuant to Section 5.7,
or if the Servicer  prior thereto has been  reimbursed  pursuant to Section 5.7,
the Trust  Collateral  Agent shall withhold such amounts from amounts  otherwise
distributable to the Servicer on the next succeeding Distribution Date.

     SECTION 5.4. Application of Collections. For all purposes of this Agreement
the allocation of a payment on a Receivable between principal and interest shall
be made based upon the amortization method provided in the related Contract. For
purposes of allocating a pay-ahead payment on a Receivable between principal and
interest, the pay-ahead shall be deemed to have been received on the date it was
actually due. For all purposes of this Agreement,  no amount shall be treated as
collected  under a  Receivable  until such  amount has been  deposited  into the
Collection Account. 

     SECTION 5.5. Withdrawals from Series 1998-1 Spread Account.

     (a) In the  event  that the  Servicer's  Certificate  with  respect  to any
Determination  Date shall state that the  Available  Amount with respect to such
Distribution  Date is less than the sum of the  amounts  payable on the  related
Distribution  Date  pursuant to clauses  (i)  through  (iv) (other than any Note
Prepayment  Amount) of Section 5.7(b) (such deficiency being a "Deficiency Claim
Amount"),  which notice shall also state if there are not sufficient  amounts in
the  Spread  Account  to  cover  such  deficiency,  then  on  the  Business  Day
immediately  preceding the related Draw Date, the Trust  Collateral  Agent shall
deliver  to the  Collateral  Agent,  the  Owner  Trustee,  the  Insurer  and the
Servicer, by hand delivery, telex or facsimile transmission, a written notice (a
"Deficiency   Notice")   specifying  the   Deficiency   Claim  Amount  for  such
Distribution  Date and the Note Policy Claim  Amount,  if any.  Such  Deficiency
Notice shall direct the Collateral  Agent to remit such Deficiency  Claim Amount
(to the extent of the funds  available to be distributed  pursuant to the Spread
Account  Agreement) to the Trust  Collateral Agent for deposit in the Collection
Account on the related Distribution Date.

     (b) Any  Deficiency  Notice  shall be delivered by 10:00 am., New York City
time,  on the  Business  Day  immediately  preceding  the Draw Date  immediately
preceding  the  related  Distribution  Date.  The  amounts  distributed  by  the
Collateral Agent to the Trust  Collateral Agent pursuant to a Deficiency  Notice
shall be deposited by the Trust  Collateral  Agent into the  Collection  Account
pursuant to Section 5.6. 

     SECTION 5.6. Additional Deposits.

     (a)  NAFI and the  Seller,  as  applicable,  shall  deposit  or cause to be
deposited in the Collection  Account on the Reporting Date following the date on
which such  obligations  are due the aggregate  Purchase  Amount with respect to
Purchased  Receivables.  On or before each Draw Date, the Trust Collateral Agent
shall  remit to the  Collection  Account  any  amounts  delivered  to the  Trust
Collateral Agent by the Collateral Agent.
<PAGE>

     (b) Any Insolvency  Proceeds  shall be deposited in the Collection  Account
pursuant to Section 11.1(b).

     SECTION 5.7. Distributions.

     (a) On each  Distribution  Date,  the Trust  Collateral  Agent shall (based
solely on the  information  contained in the  Servicer's  Certificate  delivered
pursuant to Section 4.11 on the related  Reporting Date unless the Insurer shall
have  notified the Trust  Collateral  Agent of any errors or  deficiencies  with
respect thereto) cause to be made the following  transfers and  distributions in
the amounts set forth in such report for such Distribution Date:

          (i) During the Pre-Funding Period, from the Pre-Funding Period Reserve
     Account to the Note Distribution  Account, in immediately  available funds,
     the Monthly  Pre-Funding  Period Reserve Amount for such Distribution Date;
     and

          (ii) If such Distribution Date is the Mandatory  Redemption Date, from
     the Pre-Funding  Account to the Note Distribution  Account,  in immediately
     available funds, the Pre-Funded  Amount after giving effect to the purchase
     of Subsequent  Receivables,  if any, on the Mandatory  Redemption  Date.

     (b) On each  Distribution  Date, the Trust  Collateral  Agent shall, to the
extent  of the  Available  Amount  (any  amount of which  was  deposited  to the
Distribution  Account pursuant to Section 5.11 to be applied only as directed by
the Insurer) together with funds withdrawn from the Spread Account, if any, make
the following payments (in case of the withdrawals from the Spread Account,  for
payments of the Servicing  Fee, the  Noteholders'  Distributable  Amount and any
amounts  owing  to the  Insurer  pursuant  to  clause  (iv)  below  only) in the
following order of priority:

          (i) from the Distribution  Account to the Servicer,  the Servicing Fee
     for the related  Due Period,  Period,  and any unpaid  Servicing  Fees from
     prior Due Periods to the extent not previously paid;

          (ii) from the  Distribution  Account  to each of the Trust  Collateral
     Agent,  the  Trustee,  the  Owner  Trustee,  the  Collateral  Agent and the
     Custodian,  their respective accrued and unpaid fees to the extent not paid
     by  the  Servicer;

          (iii) from the Distribution Account to the Note Distribution  Account,
     the  Noteholders'  Distributable  Amount  (other  than  the  amount  to  be
     transferred from the Pre-Funding  Account to the Note Distribution  Account
     in accordance with Section 5.7(a)(ii));

          (iv) from the  Distribution  Account to the Insurer  (or any  designee
     thereof),  to the  extent of any  amounts  owing to the  Insurer  under the
     Insurance Agreement, the Indenture or this Agreement and not paid;
<PAGE>

          (v) from the Distribution  Account to the Collateral Agent for deposit
     to the Spread Account,  all Available Amounts remaining after  distribution
     pursuant  to clause (i)  through  (iv) above;  

          (vi) from amounts,  if any,  released from the Spread  Account on such
     Distribution Date, to the Pre-Funding Period Reserve Account, the amount by
     which the Required  Reserve  Amount  exceeds the amount of funds on deposit
     therein after giving effect to any withdrawals from the Pre-Funding  Period
     Reserve Account on such  Distribution  Date; 

     (vii) from amounts (as reduced by the distributions pursuant to clause (vi)
above),  if any, release from the Spread Account on such  Distribution  Date, to
the Trustee and the Owner Trustee for any  unreimbursed  expenses and to pay any
indemnities  owed by the Seller to the  Trustee  under the  Indenture  or to the
Owner Trustee under the Trust Agreement;  

     (viii) from  amounts (as  reduced by the  distribution  pursuant to clauses
(vi) and  (vii)  above),  if any,  released  from  the  Spread  Account  on such
Distribution  Date,  to reimburse  the Servicer for any expense of an Opinion of
Counsel  incurred in  connection  with an  amendment to the  Indenture,  and any
expenses  incurred  by the  Servicer in  connection  with a  realization  upon a
Defaulted Receivable; 

     (ix) from amounts (as reduced by the distribution pursuant to clauses (vi),
(vii) and  (viii)  above),  if any  released  from the  Spread  Account  on such
Distribution Date, to reimburse the Backup Servicer for expenses incurred by the
Backup  Servicer  and to reimburse  the  Servicer  for expenses  incurred by and
reimbursable, or any indemnities payable by the Seller, to the Servicer pursuant
to this Agreement;  

     (x) from amounts (as reduced by the distribution  pursuant to clauses (vi),
(vii),  (viii) and (ix) above),  if any released from the Spread Account on such
Distribution  Date,  to  reimburse  the  Seller  for  expenses  incurred  by and
reimbursable  to the Seller  pursuant to the Indenture and this  Agreement;  and

     (xi) from amounts (as reduced by the distribution pursuant to clauses (vi),
(vii),  (viii),  (ix) and (x) above), if any released from the Spread Account on
such  Distribution  Date,  to the  holder(s)  of  the  Trust  Certificates,  any
remaining funds.  

provided,  however,  that, (A) following an acceleration of the Notes or, (B) if
an Insurer Default shall have occurred and be continuing and an Event of Default
pursuant to Section 5.1(i), 5.1(ii), 5.1(iv), 5.1(v) or 5.1(vi) of the Indenture
shall have  occurred and be  continuing,  in each case,  to the extent  actually
known by a Trust Officer of the Trust  Collateral  Agent,  or (C) the receipt of
Insolvency  Proceeds pursuant to Section 11.1(b),  amounts deposited in the Note
Distribution   Account   (including  any  such  Insolvency   Proceeds)  and  the
Distribution Account shall be paid to the Noteholders and the Certificateholders
pursuant to Section 5.6 of the Indenture.
<PAGE>

     (c) Each  Certificateholder,  by its  acceptance of its Trust  Certificate,
will be  deemed to have  consented  to the  provisions  of  paragraph  (b) above
relating to the  priority of  distributions  and will be further  deemed to have
acknowledged  that no property  rights in any amount of funds or the proceeds of
any such amount shall vest in such Certificateholder  until such amount has been
distributed to such  Certificateholder  pursuant to such  provisions;  provided,
that the foregoing shall not restrict the right of any  Certificateholder,  upon
compliance with the provisions hereof, from seeking to compel the performance of
the provisions hereof by the parties hereto.

     (d)  In  furtherance  of and  not in  limitation  of  the  foregoing,  each
Certificateholder,   by  acceptance  of  its  Trust  Certificate,   specifically
acknowledges  that no  amounts  shall be  received  by it, nor shall it have any
right  to  receive  any  amounts,  unless  and  until  such  amounts  have  been
distributed  pursuant  to  clause  (xi)  above to such  Certificateholder.  Each
Certificateholder,  by acceptance of its Trust Certificate, further specifically
acknowledges  that it has no right to or interest in any monies at any time held
pursuant to the Spread Account Agreement or pursuant hereto prior to the release
of such monies as aforesaid,  such monies being held in trust for the benefit of
the Noteholders  and the Insurer.  Notwithstanding  the foregoing,  in the event
that it is ever determined that the monies held in the Spread Account constitute
a pledge of  collateral,  then the  provisions of this  Agreement and the Spread
Account Agreement shall be considered to constitute a security agreement and the
Seller and the  Certificateholders  hereby grant to the Collateral Agent for the
benefit of the  Trustee  and the  Insurer a first  priority  perfected  security
interest  in such  amounts,  to be applied  as set forth in Section  3.03 of the
Spread Account Agreement. In addition, each Certificateholder,  by acceptance of
its Trust Certificate, hereby appoints the Seller as its agent to pledge a first
priority perfected security interest in the Spread Account, and any amounts held
therein from time to time to the Collateral Agent for the benefit of the Trustee
and the Insurer  pursuant to the Spread Account  Agreement and agrees to execute
and deliver such  instruments of conveyance,  assignment,  grant,  confirmation,
etc.,  as well as any  financing  statements,  in each case as the Insurer shall
consider  reasonably  necessary  in  order to  perfect  the  Collateral  Agent's
Security  Interest  in the  Collateral  (as such terms are defined in the Spread
Account  Agreement).  

     (e) In the  event  that  the  Collection  Account  is  maintained  with  an
institution  other than the Trust Collateral  Agent, the Servicer shall instruct
and cause such  institution to make all deposits and  distributions  pursuant to
Section 5.7(b) on the related  Distribution Date. 

     SECTION 5.8. Note Distribution Account.

     (a) On each Distribution  Date, the Trust Collateral Agent shall distribute
all  amounts on deposit in the Note  Distribution  Account,  as such  amounts on
deposit in the Note Distribution Account are specified on the monthly Servicer's
Certificate, to Noteholders in respect of the Notes to the extent of amounts due
and unpaid on the Notes for principal and interest in the following  amounts and
in the following order of priority:

          (i) accrued and unpaid  interest on the Notes;  provided that if there
     are not sufficient funds in the Note Distribution Account to pay the entire
     amount of accrued and unpaid interest then due on the Notes,  the amount in
     the Note  Distribution  Account  shall be  applied  to the  payment of such
     interest  on the Notes pro rata on the basis of the amount of  accrued  and
     unpaid interest due on the Notes; and
<PAGE>

          (ii) to the  Noteholders,  the  Noteholders'  Principal  Distributable
     Amount until the outstanding  principal  balance of the Notes is reduced to
     zero. 

     (b) On each  Distribution  Date, the Trust  Collateral  Agent shall send to
each Noteholder,  in accordance with Section 5.10, the statement provided to the
Trust  Collateral  Agent by the Servicer  pursuant to Section 4.11(b) hereof for
distribution on such Distribution Date.

     (c) In the event that any withholding tax is imposed on the Trust's payment
(or  allocations  of income) to a  Noteholder,  such tax shall reduce the amount
otherwise  distributable to the Noteholder in accordance with this Section.  The
parties  hereto  hereby  agree to  provide  to the  Trust  Collateral  Agent the
information  any  such  party  may  have,  if  any,  with  respect  to any  such
withholding tax. The Trust Collateral Agent is hereby authorized and directed to
retain from amounts otherwise  distributable to the Noteholders sufficient funds
for the  payment  of any tax  that  is  legally  owed  by the  Trust  (but  such
authorization  shall not prevent the Trust  Collateral Agent from contesting any
such tax in appropriate  proceedings,  and  withholding  payment of such tax, if
permitted by law,  pending the outcome of such  proceedings).  The amount of any
withholding  tax imposed with  respect to a Noteholder  shall be treated as cash
distributed  to such  Noteholder  at the time it is  withheld  by the  Trust and
remitted to the appropriate  taxing  authority.  If there is a possibility  that
withholding  tax  is  payable  with  respect  to  a  distribution   (such  as  a
distribution to a non-U.S.  Noteholder),  the Trust  Collateral Agent may in its
sole discretion withhold such amounts in accordance with this clause (c). In the
event  that a  Noteholder  wishes to apply for a refund of any such  withholding
tax, the Trust Collateral Agent shall reasonably  cooperate with such Noteholder
in making such claim so long as such  Noteholder  agrees to reimburse  the Trust
Collateral Agent for any  out-of-pocket  expenses  incurred.

     (d)  Distributions  required to be made to Noteholders on any  Distribution
Date shall be made to each  Noteholder  of record on the  preceding  Record Date
either by wire transfer,  in immediately available funds, to the account of such
Noteholder at a bank or other entity having appropriate  facilities therefor, if
such Noteholder  shall have provided to the Note Registrar  appropriate  written
instructions  at least five  Business Days prior to such  Distribution  Date and
such Holder's Notes in the aggregate  evidence a  denomination  of not less than
$1,000,000 or, if not, by check mailed to such Noteholder at the address of such
holder  appearing  in  the  Note  Register;   provided,  however,  that,  unless
Definitive  Notes have been issued  pursuant to Section  2.12 of the  Indenture,
with respect to Notes  registered  on the Record Date in the name of the nominee
of the Clearing Agency (initially, such nominee to be Cede & Co.), distributions
will be made by wire  transfer  in  immediately  available  funds to the account
designated  by  such  nominee.   Notwithstanding   the   foregoing,   the  final
distribution in respect of any Note (whether on the Final Scheduled Distribution
Date or otherwise) will be payable only upon  presentation and surrender of such
Note at the office or agency  maintained  for that purpose by the Note Registrar
pursuant to Section 2.4 of the Indenture.
<PAGE>

     SECTION 5.9. Pre-Funding Account.

     (a) On the Closing Date, the Trust Collateral Agent will deposit, on behalf
of the Seller, in the Pre-Funding  Account  $16,490,982.64  from the proceeds of
the sale of the Notes.  On each  Subsequent  Transfer  Date,  the Servicer shall
instruct the Trust Collateral Agent to withdraw from the Pre-Funding  Account an
amount  equal to 91% of the  Principal  Balance  of the  Subsequent  Receivables
transferred  to the Issuer on such  Subsequent  Transfer  Date and to distribute
such  amount  to or upon  the  order  of the  Seller  upon  satisfaction  of the
conditions set forth in this Agreement with respect to such transfer.  The Trust
Collateral  Agent shall also deposit into the Pre-Funding  Account any income or
gain earned from the investment of amounts on deposit in the Pre-Funding Account
as  received.  On each  Distribution  Date,  any income and gain earned from the
investment of amounts on deposit in the  Pre-Funding  Account since the previous
Distribution  Date (or the Closing Date,  in the case of the first  Distribution
Date) shall be deposited into the Note Distribution Account.

     (b) If the  Pre-Funded  Amount has not been  reduced to zero on the date on
which the  Pre-Funding  Period ends after giving effect to any reductions in the
Pre-Funded Amount on such date, the Servicer shall instruct the Trust Collateral
Agent to withdraw from the Pre-Funding Account on the Mandatory  Redemption Date
the Pre-Funded  Amount  (exclusive of any  Pre-Funding  Earnings) and deposit an
amount equal to the Note  Prepayment  Amount in the Note  Distribution  Account.

     SECTION  5.10.   Statements   to   Noteholders.   Concurrently   with  each
distribution  charged to the Note  Distribution  Account,  the Trust  Collateral
Agent shall forward by mail to each Noteholder,  the Seller,  the Servicer,  the
Insurer and each Rating  Agency,  a written  statement  prepared by the Servicer
substantially in the form attached hereto as Exhibit 5.10.

     SECTION 5.11.  Optional  Deposits by the Insurer.  The Insurer shall at any
time,  and from time to time,  with  respect to a  Distribution  Date,  have the
option  (but shall not be  required,  except in  accordance  with the terms of a
Policy) to deliver  amounts to the Trust  Collateral  Agent for deposit into the
Distribution Account for any of the following purposes:  (i) to provide funds in
respect of the payment of fees or  expenses  of any  provider of services to the
Trust with respect to such Distribution  Date, or (ii) to include such amount to
the extent that  without  such amount a draw would be required to be made on the
Note Policy.

                                   ARTICLE VI

                                 THE NOTE POLICY

     SECTION 6.1. Claims Under Note Policy.

     (a) In the event that the Trust Collateral Agent has delivered a Deficiency
Notice with respect to any  Determination  Date  pursuant to Section 5.5 hereof,
the Trust  Collateral  Agent shall on the related Draw Date  determine  the Note
Policy Claim Amount for the related  Distribution Date. If the Note Policy Claim
Amount specified on the Deficiency  Notice for such Distribution Date is greater
than zero, the Trust Collateral Agent shall furnish to the Insurer no later than
12:00 noon New York City time on the related  Draw Date,  a completed  Notice of
Claim (as defined in (b) below) in the amount of the Note Policy  Claim  Amount.
Amounts paid by the Insurer pursuant to a claim submitted under this Section 6.1
shall be  deposited  by the Trust  Collateral  Agent into the Note  Distribution
Account  for payment  pursuant  to  paragraph  (b) below to  Noteholders  on the
related Distribution Date.
<PAGE>

     (b) Any  notice  delivered  by the Trust  Collateral  Agent to the  Insurer
pursuant to subsection 6.1(a) shall specify the Note Policy Claim Amount claimed
under the Note Policy and shall  constitute  a "Notice of Claim"  under the Note
Policy.  In accordance  with the  provisions of the Note Policy,  the Insurer is
required  to pay to the Trust  Collateral  Agent the Note  Policy  Claim  Amount
properly  claimed  thereunder by 12:00 noon, New York City time, on the later of
(i) the third Business Day (as defined in the Note Policy)  following receipt on
a Business Day (as defined in the Note Policy) of the Notice of Claim,  and (ii)
the applicable Distribution Date. Any payment made by the Insurer under the Note
Policy  shall be applied  solely to the  payment of the Notes,  and for no other
purpose.

     (c) The Trust  Collateral  Agent shall (i) receive as  attorney-in-fact  of
each  Noteholder  any Note Policy Claim Amount from the Insurer and (ii) deposit
the same in the Note Distribution  Account for distribution to Noteholders.  Any
and all Note Policy Claim Amounts  disbursed by the Trust  Collateral Agent from
claims made under the Note Policy shall not be  considered  payment by the Trust
or from the Spread  Account with respect to such Notes,  and shall not discharge
the  obligations of the Trust with respect  thereto.  The Insurer shall,  to the
extent it makes any payment with respect to the Notes,  become subrogated to the
rights of the  recipients  of such  payment,  to the  extent  of such  payments.
Subject to and  conditioned  upon any payment with respect to the Notes by or on
behalf of the Insurer,  the Trust  Collateral  Agent shall assign to the Insurer
all rights to the  payment of interest or  principal  with  respect to the Notes
which  are  then due for  payment  to the  extent  of all  payments  made by the
Insurer, and the Insurer may exercise any option, vote, right, power or the like
with respect to the Notes to the extent that it has made payment pursuant to the
Note Policy. To evidence such subrogation, the Note Registrar (as defined in the
Indenture)  shall note the  Insurer's  rights as subrogee upon the Note Register
upon  receipt  from the  Insurer  of  proof of  payment  by the  Insurer  of any
Noteholders'   Interest   Distributable   Amount   or   Noteholders'   Principal
Distributable Amount. The foregoing subrogation shall in all cases be subject to
the rights of the  Noteholders to receive all Scheduled  Payments (as defined in
the Note Policy) in respect of the Notes.

     (d) The Trust Collateral Agent shall keep a complete and accurate record of
all funds  deposited  by the  Insurer  into the Note  Distribution  Account  and
Distribution  Account and the allocation of such funds to payment of interest on
and principal  paid in respect of any Note.  The Insurer shall have the right to
inspect such records at reasonable times upon one Business Day's prior notice to
the Trust Collateral Agent.

     (e) The Trust  Collateral  Agent  shall be entitled to enforce on behalf of
the   Noteholders  the  obligations  of  the  Insurer  under  the  Note  Policy.
Notwithstanding  any  other  provision  of  this  Agreement  or any  Transaction
Document,  the  Noteholders  are not  entitled to make any claims under the Note
Policy or  institute  proceedings  directly  against the  Insurer.
<PAGE>

     SECTION 6.2. Preference Claims.

     (a) In the event that the Trust  Collateral  Agent has received a certified
copy of an order of the appropriate court that any Scheduled Payment (as defined
in the Note Policy) has been avoided in whole or in part as a preference payment
under applicable  bankruptcy law, the Trust Collateral Agent shall so notify the
Insurer,  shall comply with the  provisions of the Note Policy to obtain payment
by the  Insurer of such  avoided  payment,  and shall,  at the time it  provides
notice to the Insurer,  notify  Holders of the Notes by mail that,  in the event
that  any  Noteholder's  payment  is so  recoverable,  such  Noteholder  will be
entitled  to  payment  pursuant  to the  terms of the  Note  Policy.  The  Trust
Collateral  Agent  shall  furnish to the  Insurer  its  records  evidencing  the
payments of principal of and interest on Notes,  if any, which have been made by
the Trust Collateral Agent and subsequently recovered from Noteholders,  and the
dates on which  such  payments  were  made.  Pursuant  to the  terms of the Note
Policy,  the Insurer will make such payment on behalf of the  Noteholder  to the
receiver,  conservator,  debtor-in-possession  or trustee in bankruptcy named in
the Order (as defined in the Note Policy) and not to the Trust  Collateral Agent
or any Noteholder directly (unless a Noteholder has previously paid such payment
to the receiver, conservator,  debtor-in-possession or trustee in bankruptcy, in
which case the Insurer will make such payment to the Trust  Collateral Agent for
distribution  to  such   Noteholder  upon  proof  of  such  payment   reasonably
satisfactory to the Insurer).

     (b) The Trust  Collateral  Agent shall  promptly  notify the Insurer of any
proceeding or the institution of any action (of which the Trust Collateral Agent
has actual  knowledge)  seeking the avoidance as a  preferential  transfer under
applicable bankruptcy, insolvency,  receivership,  rehabilitation or similar law
(a "Preference  Claim") of any distribution made with respect to the Notes. Each
Noteholder,  by its  purchase of Notes,  and the Trust  Collateral  Agent hereby
agree  that so  long as an  Insurer  Default  shall  not  have  occurred  and be
continuing,  the  Insurer  may  at  any  time  during  the  continuation  of any
proceeding  relating to a Preference  Claim direct all matters  relating to such
Preference Claim including,  without limitation, (i) the direction of any appeal
of any  order  relating  to any  Preference  Claim and (ii) the  posting  of any
surety,  supersedeas or performance  bond pending any such appeal at the expense
of the  Insurer,  but subject to  reimbursement  as  provided  in the  Insurance
Agreement. In addition, and without limitation of the foregoing, as set forth in
Section 6.1(c),  the Insurer shall be subrogated to, and each Noteholder and the
Trust  Collateral  Agent  hereby  delegate  and assign,  to the  fullest  extent
permitted by law, the rights of the Trust  Collateral  Agent and each Noteholder
in the conduct of any proceeding with respect to a Preference Claim,  including,
without  limitation,  all rights of any party to an adversary  proceeding action
with respect to any court order issued in  connection  with any such  Preference
Claim.

     SECTION 6.3.  Surrender of Note Policy.  The Trust  Collateral  Agent shall
surrender the Note Policy to the Insurer for cancellation upon the expiration of
such policy in accordance with the terms thereof.

     SECTION 6.4. Spread  Account.  The Seller agrees,  simultaneously  with the
execution  and  delivery  of this  Agreement,  to execute and deliver the Spread
Account  Agreement,  and pursuant to the terms  thereof,  to deposit the Initial
Spread Account Deposit in the Spread Account.
<PAGE>

                                  ARTICLE VII

                                    RESERVED

                                  ARTICLE VIII

                                   The Seller

     SECTION 8.1.  Representations,  Warranties and Covenants of the Seller. The
Seller hereby represents,  warrants and covenants to the Trust Collateral Agent,
the Insurer and the Servicer,  which  representations,  warranties and covenants
shall survive as long as any Note shall be outstanding or this Agreement has not
been terminated, that as of the Closing Date and each Subsequent Transfer Date:

     (a) the  Seller  is a  Delaware  business  trust  duly  organized,  validly
existing,  and in good standing  under the laws of the State of Delaware and has
all  licenses  and  approvals  necessary  to carry on its  business as now being
conducted and shall appoint and employ agents or attorneys in each  jurisdiction
where it shall be necessary to take action  under this  Agreement  and the other
Transaction  Documents;  the Seller has the full power and  authority to own its
property,  to carry on its  business  as  presently  conducted,  and to execute,
deliver and perform  each of the  Transaction  Documents to which it is a party;
the execution,  delivery and performance of each of the Transaction Documents to
which it is a party  (including  all  instruments  of transfer  to be  delivered
pursuant to any such Transaction Documents to which it is a party) by the Seller
and the  consummation of the transactions  contemplated  hereby and thereby have
been duly and validly authorized;  each of the Transaction Documents to which it
is a party  evidences  the valid,  binding and  enforceable  obligations  of the
Seller  (subject to applicable  bankruptcy and insolvency laws and other similar
laws  affecting the  enforcement of creditors'  rights  generally and to general
principles  of  equity,  regardless  of  whether  enforcement  is  sought  in  a
proceeding in equity or at law); and all requisite  action has been taken by the
Seller to make each of the  Transaction  Documents  to which it is a party valid
and binding upon the Seller (subject as aforesaid in the preceding clause);

     (b) the Seller is not  required to obtain the consent of any other party or
obtain  the  consent,  license,  approval  or  authorization  of,  or  make  any
registration or declaration with, any governmental  authority,  bureau or agency
in  connection   with  the  execution,   delivery,   performance,   validity  or
enforceability of this Agreement or any other  Transaction  Document to which it
is a  party;

     (c) the consummation of the transactions contemplated by this Agreement and
the other  Transaction  Documents  will not  result in the breach of any term or
provision  of the trust  agreement  of the Seller or result in the breach of any
term or provision  of, or conflict with or constitute a default (with or without
notice,  lapse  of time or both)  under or  result  in the  acceleration  of any
obligation under, any agreement,  indenture or loan or credit agreement or other
instrument  to which the  Seller or its  property  is  subject  or result in the
creation or  imposition of any Lien upon any of its  properties  pursuant to the
terms of any such  agreement,  indenture  or loan or credit  agreement  or other
instrument  (aside from the lien created pursuant to this Agreement),  or result
in the violation of any law (including, without limitation, any bulk transfer or
similar law), rule, regulation, order, judgment or decree to which the Seller or
its property or the Receivables are subject;
<PAGE>

     (d) no  statement,  report or other  document  furnished or to be furnished
pursuant to this Agreement or in connection  with the  transaction  contemplated
hereby  contains or will,  when  furnished,  contain any untrue  statement  of a
material fact or omits or will,  when  furnished,  omit to state a material fact
necessary to make the statements  contained therein not misleading,  in light of
the circumstances  under which they were made;

     (e) neither the Seller nor any of its subsidiaries or Affiliates is a party
to, bound by or in breach or violation  of any  indenture or other  agreement or
instrument, or subject to or in violation of any statute, order or regulation of
any court,  regulatory body,  administrative  agency or governmental body having
jurisdiction  over it, which  materially  and adversely  affects,  or may in the
future materially and adversely affect, the ability of the Seller to perform its
obligations  under this Agreement or any other  Transaction  Document;

     (f) this Agreement and each  Conveyance  Agreement,  when duly executed and
delivered, shall effect a valid sale, transfer and assignment of the Receivables
and the remaining Trust Property,  enforceable  against the Seller and creditors
of and purchasers from the Seller;

     (g) there are no actions, suits,  proceedings or investigations pending or,
to the Seller's  knowledge,  threatened  against the Seller or NAFI,  before any
court, regulatory body,  administrative agency or other tribunal or governmental
instrumentality  having  jurisdiction  over the  Seller  or its  properties  (i)
asserting the invalidity of this Agreement or any of the Transaction  Documents,
(ii) seeking to prevent the issuance of the Notes or the  consummation of any of
the  transactions  contemplated  by  this  Agreement  or any of the  Transaction
Documents,  (iii) seeking any  determination or ruling that might materially and
adversely affect the performance by the Seller of its obligations  under, or the
validity  or  enforceability  of,  this  Agreement  or any  of  the  Transaction
Documents,  (iv)  involving  the Seller  and which  might  adversely  affect the
federal income tax or other federal, state or local tax attributes of the Notes,
or (v) that could have a material  adverse  effect on the  Receivables.

     (h) the Seller has  obtained  or made all  necessary  consents,  approvals,
waivers and  notifications  of  creditors,  lessors  and other  non-governmental
persons,  in each case,  in  connection  with the execution and delivery of this
Agreement and the other Transaction  Documents,  and the consummation of all the
transactions herein and therein contemplated;

     (i) the Seller  shall not take any  action to impair  the Trust  Collateral
Agent's rights on behalf of the Noteholders and the Insurer in any Contract;

     (j) the Seller has filed all  federal,  state,  county,  local and  foreign
income,  franchise and other tax returns  required to be filed by it through the
date hereof, and has paid all taxes reflected as due thereon;
<PAGE>

     (k) since the date of its organization, the Seller has maintained its chief
executive  office in the State of  Florida or the State of  Delaware,  and there
have been no other  locations of the Seller's  principal  office during the four
(4) months preceding the Closing Date; 

     (l) Seller is solvent and will not become  insolvent after giving effect to
the  transactions  contemplated  hereunder;  Seller is paying  its debts as they
become due; Seller, after giving effect to the contemplated  transactions,  will
have  adequate  capital  to  conduct  its  business; 

     (m) since  February  1995,  "National  Financial Auto Funding Trust" is the
only trade name under which the Seller has operated its business  and,  prior to
such date,  NAFCO  Funding  Trust was the only trade name under which the Seller
operated  its  business;

     (n) the Seller shall not engage in any  business or activity  other than in
connection  with or relating to the  purchase of auto loan  receivables  and the
issuance of securities secured by, or evidencing  beneficial  interests in, such
auto loan  receivables;

     (o) the Seller is not and shall not be involved in the  day-to-day or other
management of its parent or any of its affiliates;

     (p) the Seller's  financial  statements  shall  reflect its separate  legal
existence from any of its affiliates;

     (q) the Seller  shall  maintain  records and books of account of the Seller
and shall not  commingle  such records and books of account with the records and
books of account of any Person;

     (r) the  Seller  shall  act  solely  in its own name and  through  the duly
authorized trustees or agents in the conduct of its business,  and shall conduct
its  business so as not to mislead  others as to the identity of the entity with
which they are  concerned;

     (s) at all times,  except in the case of a temporary  vacancy,  which shall
promptly be filled,  the Seller shall have at least one trust  collateral  agent
who qualifies as an "Independent Trust Collateral Agent" as such term is defined
in the Trust  Agreement  as in  effect  on the date  hereof.

     The Seller shall indemnify the Trust  Collateral  Agent,  the Insurer,  the
Servicer,  their respective officers,  directors,  agents and employees and each
Noteholder,  and  hold  each  of them  harmless  against  any  and  all  damages
(including  all  expenses  and  legal  fees)  resulting  from  a  breach  of the
representations and warranties set forth in this Section 8.1.

     The   Insurer   shall  be   deemed  to  have   relied   on  the   foregoing
representations,  warranties  and covenants in executing and delivering the Note
Policy.
<PAGE>

     SECTION 8.2. Corporate Existence.

     (a) During the term of this  Agreement,  the Seller will keep in full force
and  effect  its  existence,  rights and  franchises  as a  business  trust or a
corporation  under  the  laws of  Delaware  and will  obtain  and  preserve  its
qualification to do business in each jurisdiction in which such qualification is
or shall be  necessary  to  protect  the  validity  and  enforceability  of this
Agreement, any Subsequent Transfer Agreement, the Transaction Documents and each
other   instrument  or  agreement   necessary  or   appropriate  to  the  proper
administration  of this Agreement and such other agreements and the transactions
contemplated hereby and thereby and the performance of its obligations hereunder
and thereunder.

     (b)  During  the term of this  Agreement,  the  Seller  shall  observe  the
applicable  legal  requirements  for the  recognition  of the  Seller as a legal
entity  separate and apart from its  Affiliates,  including as follows:

          (i) the Seller shall  maintain  business  records and books of account
     separate from those of its Affiliates;

          (ii) except as otherwise provided in this Agreement,  the Seller shall
     not commingle its assets and funds with those of its Affiliates;

          (iii) the  Seller  shall at all times  hold  itself  out to the public
     under the Seller's own name as a legal  entity  separate and distinct  from
     its Affiliates;  and

          (iv)  all  transactions  and  dealings  between  the  Seller  and  its
     Affiliates  will  be  conducted  on an  arm's-length  basis.

     SECTION 8.3. Liability of Seller;  Indemnities.  The Seller shall be liable
in  accordance  herewith  only to the  extent  of the  obligations  specifically
undertaken  under this Agreement by the Seller and the  representations  made by
the Seller under this Agreement.

     (a) The Seller shall  indemnify,  defend and hold harmless the Issuer,  the
Owner Trustee,  the Trust, the Insurer,  the Trustee, the Trust Collateral Agent
and their respective officers,  directors, agents and employees from and against
any taxes that may at any time be asserted  against any such Person with respect
to the  transactions  contemplated  in this Agreement and any of the Transaction
Documents  (except  any  income  taxes  arising  out of fees  paid to the  Owner
Trustee,  the Trust Collateral Agent, the Trustee and the Insurer and except any
taxes to which the Owner Trustee,  the Trust Collateral Agent or the Trustee may
otherwise  be  subject  to),  including  any  sales,  gross  receipts,   general
corporation, tangible personal property, privilege or license taxes (but, in the
case of the Issuer, not including any taxes asserted with respect to, federal or
other  income  taxes  arising out of  distributions  on the Notes) and costs and
expenses in defending against the same.

     (b) The Seller shall  indemnify,  defend and hold harmless the Issuer,  the
Owner Trustee,  the Trustee,  the Trust  Collateral  Agent,  the Insurer,  their
respective  officers,  directors,  agents and employees and the Noteholders from
and  against  any  loss,  liability  or  expense  incurred  by reason of (i) the
Seller's willful misfeasance,  bad faith or negligence in the performance of its
duties  under  this  Agreement,  or by  reason  of  reckless  disregard  of  its
obligations  and  duties  under  this  Agreement  and (ii) the  Seller's  or the
Issuer's  violation of Federal or state  securities  laws in connection with the
offering and sale of the Notes. 
<PAGE>

(c) The Seller shall indemnify, defend and hold harmless the Owner Trustee,
Trustee and the Trust Collateral Agent and their respective officers, directors,
employees and agents from and against any and all costs, expenses, losses,
claims, damages and liabilities arising out of, or incurred in connection with
the acceptance or performance of the trusts and duties set forth herein and in
the Transaction Documents except to the extent that such cost, expense, loss,
claim, damage or liability shall be due to the willful misfeasance, bad faith or
negligence (except for errors in judgment) of the Owner Trustee.

     Indemnification under this Section shall survive the resignation or removal
of the  Owner  Trustee,  the  Trustee  or the  Trust  Collateral  Agent  and the
termination  of this  Agreement or the  Indenture or the Trust  Agreement or the
Custodial  Agreement,  as  applicable,  and shall  include  reasonable  fees and
expenses of counsel and other expenses of  litigation.  If the Seller shall have
made any  indemnity  payments  pursuant to this  Section and the Person to or on
behalf of whom such  payments  are made  thereafter  shall  collect  any of such
amounts  from  others,  such Person  shall  promptly  repay such  amounts to the
Seller, without interest.

     SECTION 8.4. Merger or  Consolidation  of, or Assumption of the Obligations
of, Seller. The Seller may not be merged or consolidated with or into any person
or transfer substantially all of its assets to any Person.

     SECTION 8.5.  Limitation on Liability of Seller and Others.  The Seller and
any  director  or  officer or  employee  or agent of the Seller may rely in good
faith on the written  advice of counsel or on any  document  of any kind,  prima
facie  properly  executed  and  submitted by any Person  respecting  any matters
arising  under  any  Transaction  Document.  The  Seller  shall not be under any
obligation to appear in,  prosecute or defend any legal action that shall not be
incidental to its obligations under this Agreement,  and that in its opinion may
involve it in any expense or liability.

     SECTION 8.6. Seller May Own Notes. The Seller and any Affiliate thereof may
in its  individual  or any other  capacity  become the owner or pledgee of Notes
with the same rights as it would have if it were not the Seller or an  Affiliate
thereof,  except as expressly  provided herein or in any  Transaction  Document.
Notes  so  owned  by the  Seller  or such  Affiliate  shall  have an  equal  and
proportionate benefit under the provisions of the Transaction Documents, without
preference,  priority,  or  distinction  as among  all of the  Notes;  provided,
however, that any Notes owned by the Seller or any Affiliate thereof, during the
time such  Notes are  owned by them,  shall be  without  voting  rights  for any
purpose set forth in the  Documents  and will not be entitled to the benefits of
the Note Policy.  The Seller shall notify the Owner  Trustee,  the Trustee,  the
Trust  Collateral  Agent  and  the  Insurer  promptly  after  it or  any  of its
Affiliates become the owner or pledgee of a Note.
<PAGE>

                                   ARTICLE IX

                                  The Servicer

     SECTION 9.1. Representations, Warranties and Covenants of the Servicer. The
Servicer hereby represents, warrants and covenants to the Trust Collateral Agent
and the Insurer that as of the Closing Date and each Subsequent Transfer Date:

     (a) the Servicer is duly organized,  validly  existing and in good standing
under the laws of the state of its  organization  and is  qualified  to transact
business in and is in good standing  under the laws of each state in which it is
necessary  for it to be so  qualified  in order to carry on its  business as now
being  conducted and has all licenses  necessary to carry on its business as now
being  conducted;  the  Servicer  has the full  power and  authority  to own its
property,  to carry on its  business  as  presently  conducted,  and to execute,
deliver and perform  each of the  Transaction  Documents to which it is a party;
the execution,  delivery and performance of each of the Transaction Documents to
which it is a party  (including  all  instruments  of transfer  to be  delivered
pursuant  to any such  Transaction  Documents  to  which  it is a party)  by the
Servicer  and the  consummation  of the  transactions  contemplated  hereby  and
thereby have been duly and validly authorized; each of the Transaction Documents
to which it is a party evidences the valid,  binding and enforceable  obligation
of the Servicer (subject to applicable  bankruptcy and insolvency laws and other
similar laws  affecting the  enforcement of creditors'  rights  generally and to
general principles of equity,  regardless of whether  enforcement is sought in a
proceeding  in equity or at law) and all requisite  partnership  action has been
taken by the Servicer to make each of the Transaction Documents to which it is a
party valid and binding upon the Servicer (subject as aforesaid in the preceding
clause);

     (b) the  Servicer is not  required to obtain the consent of any other party
or obtain  the  consent,  license,  approval  or  authorization  of, or make any
registration or declaration with, any governmental  authority,  bureau or agency
in  connection   with  the  execution,   delivery,   performance,   validity  or
enforceability of this Agreement or any other Transaction  Documents to which it
is a  party;

     (c) the  consummation of the  transactions  contemplated by the Transaction
Documents  will  not  result  in the  breach  of any  term or  provision  of the
certificate of  incorporation or by-laws of the Servicer or result in the breach
of any term or provision  of, or conflict  with or constitute a default (with or
without  notice,  lapse of time or both) under or result in the  acceleration of
any obligation  under,  any agreement,  indenture or loan or credit agreement or
other instrument to which the Servicer or its property is subject,  or result in
the creation or  imposition of any Lien upon any of its  properties  pursuant to
the terms of any such agreement,  indenture or loan or credit agreement or other
instrument (aside from the lien created pursuant to this Agreement) or result in
the violation of any law, rule,  regulation,  order, judgment or decree to which
the Servicer or its property or the Receivables are subject;

     (d) the  Servicer is not a party to,  bound by or in breach or violation of
any indenture or other agreement or instrument, or subject to or in violation of
any statute, order or regulation of any court,  regulatory body,  administrative
agency or governmental  body having  jurisdiction  over it, which materially and
adversely  affects,  or may in the future materially and adversely  affect,  the
ability of the Servicer to perform its  obligations  under this Agreement or the
interest of the Noteholders,  the Trust or the Insurer in any material  respect;
<PAGE>

     (e) there are no actions, suits,  proceedings or investigations pending or,
to the Servicer's knowledge,  threatened against the Servicer, before any court,
regulatory  body,  administrative  agency  or  other  tribunal  or  governmental
instrumentality  having  jurisdiction over the Servicer or any of its properties
(i)  asserting  the  invalidity  of  this  Agreement  or any of the  Transaction
Documents, (ii) seeking to prevent the issuance of the Notes or the consummation
of any of the  transactions  contemplated  by this Agreement or any of the other
Transaction  Documents,  (iii)  seeking any  determination  or ruling that might
materially  and  adversely  affect  the  performance  by  the  Servicer  of  its
obligations  under, or the validity or enforceability  of, this Agreement or any
of the  Transaction  Documents,  (iv)  involving  the  Servicer  and which might
adversely  affect the federal  income tax or other  federal,  state or local tax
attributes of the Notes, or (v) that could have a material adverse effect on the
Receivables.   To  the  Servicer's  knowledge,   there  are  no  proceedings  or
investigations  pending or threatened  against the  Servicer,  before any court,
regulatory  body,  administrative  agency  or  other  tribunal  or  governmental
instrumentality having jurisdiction over the Servicer or its properties relating
to the Servicer  which might  adversely  affect the federal  income tax or other
federal, state or local tax attributes of the Notes;

     (f) the principal  office of the Servicer is located at One Park Place, 621
NW 53rd Street,  Suite 200, Boca Raton, Florida 33487; and

     (g) the Sub-Servicing Agreement is enforceable against the Servicer and has
been duly authorized by all necessary  corporate  action of the Servicer and has
been duly executed and delivered by the  Servicer.

     It is understood  and agreed that the  representations  and  warranties set
forth in this Section 9.1 shall survive  delivery of the  respective  Receivable
Files to the  Custodian  and the  Sub-Servicers,  if any, on behalf of the Trust
Collateral  Agent and shall survive as long as any Note shall be  outstanding or
this  Agreement  has not been  terminated.  Upon  discovery  by the Seller,  the
Servicer or a Responsible  Officer of the Trust  Collateral Agent of a breach of
any of the  representations  and  warranties set forth in this Section 9.1 which
materially and adversely affects the interests of the Noteholders or the Insurer
in any Receivable,  the party  discovering such breach shall give prompt written
notice  thereof to the other  parties  and to the  Insurer.  In  addition to the
foregoing,  the Servicer shall indemnify the Seller, the Trust Collateral Agent,
the Insurer, the Trust and the Noteholders against all costs, expenses,  losses,
damages,  claims and  liabilities,  including  reasonable  fees and  expenses of
counsel, which may be asserted against or incurred by any of them as a result of
third party claims arising out of the events or facts giving rise to a breach of
the covenants or representations and warranties set forth in Section 9.1.

     The   Insurer   shall  be   deemed  to  have   relied   on  the   foregoing
representations,  warranties  and covenants in executing and delivering the Note
Policy.
<PAGE>

     SECTION 9.2. Liability of Servicer; Indemnities.

     (a) The Servicer (in its capacity as such) shall be liable  hereunder  only
to the extent of the  obligations in this Agreement  specifically  undertaken by
the Servicer and the representations made by the Servicer.

     (b) The Servicer shall defend,  indemnify and hold harmless the Trust,  the
Trustee, the Trust Collateral Agent, the Owner Trustee, the Backup Servicer, the
Insurer,  their respective officers,  directors,  agents and employees,  and the
Noteholders  from and  against  any and all costs,  expenses,  losses,  damages,
claims and  liabilities,  including  reasonable fees and expenses of counsel and
expenses of litigation  arising out of or resulting  from the use,  ownership or
operation by the Servicer,  any Affiliate  thereof,  or any  Sub-Servicer of any
Financed Vehicle.

     (c) The Servicer shall indemnify, defend and hold harmless the Trustee, the
Trust  Collateral  Agent,  the Backup  Servicer and the Owner  Trustee and their
respective officers,  directors, agents and employees from and against any taxes
that may at any time be asserted against any of such parties with respect to the
transactions  contemplated  in this  Agreement  except to the  extent  that such
costs,  expenses,  losses,  damages,  claims  and  liabilities  arise out of the
negligence or willful  misconduct of such  parties.

     (d) The Servicer  (when the Servicer is NAFI) shall  indemnify,  defend and
hold harmless the Trust,  the Trustee,  the Trust  Collateral  Agent,  the Owner
Trustee, the Backup Servicer, the Insurer, their respective officers, directors,
agents and employees and the Noteholders  from and against any taxes that may at
any  time  be  asserted  against  any  of  such  parties  with  respect  to  the
transactions contemplated in this Agreement,  including, without limitation, any
sales, gross receipts,  tangible or intangible  personal property,  privilege or
license taxes (but not  including  any federal or other income taxes,  including
franchise  taxes,  asserted  with respect to, and as of the date of, the sale of
the Receivables and the Other Conveyed Property to the Trust or the issuance and
original  sale of the  Notes  or  asserted  with  respect  to  ownership  of the
Receivables,  or federal or other income taxes arising out of  distributions  on
the  Notes)  and costs and  expenses  in  defending  against  the same.

     (e) The Servicer  (when the Servicer is not NAFI) shall  indemnify,  defend
and hold harmless the Trust, the Trustee,  the Trust Collateral Agent, the Owner
Trustee, the Backup Servicer, the Insurer, their respective officers, directors,
agents and employees and the Noteholders from and against any taxes with respect
to the sale of  Receivables in connection  with servicing  hereunder that may at
any  time  be  asserted  against  any  of  such  parties  with  respect  to  the
transactions contemplated in this Agreement,  including, without limitation, any
sales, gross receipts,  tangible or intangible  personal property,  privilege or
license taxes (but not  including  any federal or other income taxes,  including
franchise  taxes,  asserted  with respect to, and as of the date of, the sale of
the Receivables and the Other Conveyed Property to the Trust or the issuance and
original  sale of the  Notes  or  asserted  with  respect  to  ownership  of the
Receivables,  or federal or other income taxes arising out of  distributions  on
the  Notes)  and costs and  expenses  in  defending  against  the same.

     (f) The Servicer shall  indemnify,  defend and hold harmless the Trust, the
Trustee, the Trust Collateral Agent, the Backup Servicer, the Owner Trustee, the
Insurer,  their  respective  officers,  directors,  agents and employees and the
Noteholders  from and  against  any and all  costs,  expenses,  losses,  claims,
<PAGE>

damages,  and liabilities to the extent that such cost,  expense,  loss,  claim,
damage,  or liability arose out of, or was imposed upon the Trust,  the Trustee,
the Trust  Collateral  Agent,  the Insurer or the  Noteholders  by reason of the
breach of this Agreement by the Servicer,  the negligence,  willful misfeasance,
or bad  faith of the  Servicer  in the  performance  of its  duties  under  this
Agreement or by reason of reckless disregard of its obligations and duties under
this  Agreement  or  otherwise  incurred  in  connection  with the  transactions
contemplated  hereby.

     (g) NAFI shall indemnify,  defend and hold harmless the Trust, the Trustee,
the Trust Collateral Agent, the Owner Trustee, the Backup Servicer, the Insurer,
their respective officers,  directors,  agents and employees and the Noteholders
from and  against  any loss,  liability  or  expense  incurred  by reason of the
violation  by  Servicer  or  Seller  of  federal  or  state  securities  laws in
connection with the registration or the sale of the Notes.

     (h)  Indemnification  under this Article shall survive the  termination  of
this  Agreement and will survive the early  resignation or removal of any of the
parties  hereto  and shall  include,  without  limitation,  reasonable  fees and
expenses of counsel and  expenses of  litigation.  If the  Servicer has made any
indemnity  payments  pursuant  to  this  Article  and the  recipient  thereafter
collects any of such amounts from others,  the recipient  shall  promptly  repay
such amounts collected to the Servicer,  without interest.  Notwithstanding  any
other  provision of this  Agreement,  the  obligations of the Servicer shall not
terminate or be deemed  released upon the  resignation or termination of NAFI as
the Servicer and shall survive any termination of this  Agreement.

     SECTION 9.3. Merger or  Consolidation  of, or Assumption of the Obligations
of the Servicer or the Trust Collateral Agent.

     (a) During the term of this Agreement, the Servicer will keep in full force
and  effect  its  existence,  rights  and  franchises  as a  business  trust  or
corporation  under  the  laws of  Delaware  and will  obtain  and  preserve  its
qualification to do business in each jurisdiction in which such qualification is
or shall be  necessary  to  protect  the  validity  and  enforceability  of this
Agreement, any Subsequent Transfer Agreement, the Transaction Documents and each
other   instrument  or  agreement   necessary  or   appropriate  to  the  proper
administration  of this Agreement and the transactions  contemplated  hereby and
thereby and the performance of its obligations hereunder and thereunder.

     (b) The Servicer may be merged or consolidated  with or into any Person, or
transfer substantially all of its assets to any Person, in which case any Person
resulting  from any merger or  consolidation  to which the  Servicer  shall be a
party,  or any Person  succeeding to the business of the Servicer,  shall be the
successor  of the  Servicer  hereunder,  without the  execution or filing of any
paper or any  further  act on the part of any of the  parties  hereto,  anything
herein to the contrary notwithstanding;  provided however, that the successor or
surviving  person  to the  Servicer  shall  be an  Eligible  Servicer  and  each
successor to the Servicer by virtue of its acquisition of  substantially  all of
the  Servicer's  assets  shall be deemed to have  made the  representations  and
warranties  set forth in Section  9.1  hereof  and shall  agree in writing to be
bound by each of the Servicer's obligations  hereunder;  provided further, that,
(i) no  representation  or warranty  of the  Servicer is breached at the time of
merger,  (ii) no event has occurred that, after notice or lapse of time or both,
would be an Insurance Agreement Event of Default and (iii) an opinion of counsel
to the effect that all conditions  precedent to merger have been satisfied and a
security interest opinion have been provided.  The Servicer shall provide notice
of any such merger, consolidation or transfer of substantially all of its assets
to the Insurer,  the Trust  Collateral  Agent and the Rating  Agencies.
<PAGE>

     (c) Any  Person  (i) into  which the Trust  Collateral  Agent or the Backup
Servicer  may be merged  or  consolidated,  (ii)  resulting  from any  merger or
consolidation  to which the Trust  Collateral Agent or the Backup Servicer shall
be a party, (iii) which acquires by conveyance,  transfer or lease substantially
all of the assets of the Trust Collateral Agent or the Backup Servicer,  or (iv)
succeeding to the business of the Trust Collateral Agent or the Backup Servicer,
in any of the  foregoing  cases shall  execute an  agreement  of  assumption  to
perform every  obligation of the Trust  Collateral Agent or the Backup Servicer,
as the case may be, under this  Agreement  and,  whether or not such  assumption
agreement is executed,  shall be the successor to the Trust  Collateral Agent or
the Backup  Servicer,  as the case may be,  under  this  Agreement  without  the
execution  or filing of any paper or any  further  act on the part of any of the
parties  to  this  Agreement,   anything  in  this  Agreement  to  the  contrary
notwithstanding.  The Trust Collateral Agent or the Backup Servicer, as the case
may be, or its  successor  hereunder  shall provide the Servicer and the Insurer
with prompt notice of any such transaction.  In the case of the Trust Collateral
Agent,  in the event that the  resulting  entity  does not meet the  eligibility
requirements  set forth in Section 6.11 of the Indenture,  the Trust  Collateral
Agent, upon the written request of the Insurer,  shall resign. Nothing contained
herein  shall be deemed to  release  the Trust  Collateral  Agent or the  Backup
Servicer,  as the case may be, from any obligation.

     SECTION 9.4.  Limitation on Liability of Servicer,  Trust  Collateral Agent
and Others.

     (a) In addition to the  indemnities  provided  pursuant to Section 9.2, the
Servicer  will  defend and  indemnify  the Trust  Collateral  Agent,  the Backup
Servicer,  the Insurer and their respective officers,  directors,  employees and
agents and the Noteholders against any and all costs, expenses, losses, damages,
claims and  liabilities,  including  reasonable fees and expenses of counsel and
expenses of litigation,  arising from a breach of its obligations to service the
Receivables  in  accordance  with this  Agreement;  provided  however,  that the
Servicer  shall not be liable for any such  costs,  expenses,  losses,  damages,
claims  or  liabilities  to the  extent  that  any  thereof  resulted  from  the
negligence  or willful  misconduct of the Trust  Collateral  Agent or the Backup
Servicer,  or their  officers,  directors,  employees  and agents;  and provided
further that the Servicer  will not be liable for any such amount that  resulted
from  any act or  omission  to act by it done in  conformity  with  the  written
instruction of the Trust  Collateral  Agent.  If the Servicer or Seller has made
any indemnity  payments to the Noteholders or the Trust  Collateral  Agent,  the
Insurer or their respective officers, directors, employees or agents pursuant to
this paragraph,  and the Trust Collateral Agent, the Insurer or their respective
officers, directors,  employees or agents thereafter collects any of the amounts
which gave rise to such  indemnity  payments from others or any such amounts are
received by the Trust Collateral Agent or its officers, directors,  employees or
agents,  the Trust  Collateral  Agent or its officers,  directors,  employees or
agents  shall repay such  amounts  collected  to the Servicer or Seller who made
such indemnity  payment.  These  indemnities of the Servicer and the Seller will
survive any transfer of the  respective  rights,  duties and  obligations of the
Servicer or the Seller  hereunder to another  Person,  the  termination  of this
Agreement, any Servicer Termination Event, the termination of the Trust Property
or the  resignation  or  replacement  of the  Trust  Collateral  Agent  for acts
accruing  prior  to the  transfer,  termination  of the  Trust  Property  or the
resignation  or replacement of the Trust  Collateral  Agent,  but will not cover
actions or  omissions of any  successor  Servicer  after a Servicer  Termination
Event.  Neither the Servicer nor any of its  directors,  officers,  employees or
agents shall be under any liability to the Trust Property,  the Trust Collateral
Agent,  any  Noteholder,  the Insurer or the Seller for any action  taken by the
Servicer in its  capacity as such (and not in any other  capacity) in good faith
or for errors in judgment except for any action taken or errors  committed which
caused a breach of a  representation  or warranty of the Servicer  under Section
9.1. The Seller,  the Servicer,  the Backup Servicer and any director,  officer,
employee or agent of the Seller, the Servicer or the Backup Servicer may rely in
good  faith on any  document  of any kind  prima  facie  properly  executed  and
submitted by any Person respecting any matters arising hereunder.
<PAGE>

     (b) The Seller, the Servicer and any director,  officer,  employee or agent
of the Seller or the Servicer  shall be  indemnified  by the Trust  Property and
held harmless against any loss, liability or expense incurred in connection with
any legal action  relating to this Agreement or the Notes,  other than any loss,
liability  or expense for which the Seller or Servicer  provides an indemnity as
provided in Sections 8.3 and 9.2,  respectively,  and in the preceding paragraph
(except as any such loss,  liability or expense shall be otherwise  reimbursable
pursuant to this Agreement).  Neither the Seller nor the Servicer shall be under
any  obligation to appear in,  prosecute or defend any legal action which is not
in its  reasonable  judgment  incidental  to its  respective  duties  under this
Agreement and which in its reasonable  judgment may subject it to any expense or
liability;  provided however,  that the Servicer may in its discretion undertake
any such action  which it may deem  necessary  or  desirable  in respect to this
Agreement  and the rights and duties of the parties  hereto and the  interest of
the Noteholders  hereunder.  In such event, the legal expenses and costs of such
action  and any  liability  resulting  therefrom  shall be  expenses,  costs and
liabilities  of the Trust  Property,  and the  Servicer  shall be entitled to be
reimbursed therefor as provided herein. The rights of the Servicer to indemnity,
reimbursement or limitation on its liability  pursuant to this Section 9.4 shall
survive the transfer of the rights,  duties and  obligations  of the Servicer to
another  Person or any Servicer  Default.

     (c) The Backup  Servicer  shall not be  required  to expend or risk its own
funds or otherwise  incur  financing  liability in the performance of any of its
duties  hereunder,  or in the  exercise  of any of its rights or powers,  if the
repayment  of such funds or  adequate  written  indemnity  against  such risk or
liability is not reasonably assured to it in writing prior to the expenditure or
risk of  such  funds  or  incurrence  of  financial  liability.  Notwithstanding
anything  herein to the  contrary,  neither the Trust  Collateral  Agent nor the
Backup Servicer shall be liable for any obligation of the Servicer  contained in
this Agreement,  and the Trust Collateral Agent, the Seller, the Insurer and the
Noteholders  shall look only to the  Servicer to perform such  obligations.  The
Backup  Servicer  shall  perform  such  duties  and  only  such  duties  as  are
specifically set forth in the Transaction Documents, and no implied covenants or
obligations  shall be read into the  Transaction  Documents  against  the Backup
Servicer.

     (d) The  parties  expressly  acknowledge  and  consent to Harris  Trust and
Savings  Bank  acting in the dual  capacity  of  Backup  Servicer  or  successor
Servicer and in the capacity as Trust Collateral Agent. Harris Trust and Savings
<PAGE>

Bank may,  in such dual or other  capacity,  discharge  its  separate  functions
fully, without hindrance or regard to conflict of interest  principles,  duty of
loyalty  principles  or other breach of fiduciary  duties to the extent that any
such conflict or breach arises from the  performance by Harris Trust and Savings
Bank  of  express  duties  set  forth  in the  this  Agreement  in  any of  such
capacities,  all of which  defenses,  claims or assertions are hereby  expressly
waived by the other  parties  hereto and the  Noteholders  except in the case of
gross  negligence  and willful  misconduct by Harris Trust and Savings Bank.

     (e)  Neither  the  Backup  Servicer  nor  any of its  directors,  officers,
employees  or  agents  shall be under any  liability  of any kind or type to any
Person arising from the  incomplete or inaccurate  contents of any computer tape
provided by the Servicer in  accordance  with  Section  4.15 hereof.  The Backup
Servicer shall not be under any  obligations  to appear in,  prosecute or defend
any legal motion that is not incidental to its duties  hereunder and that in its
reasonable  opinion  may  involve  it in any  expense  or  liability;  provided,
however,  that the Backup  Servicer may, but shall not be obligated to, take any
such action that is reasonable and that may be necessary or desirable in respect
of this Agreement and the rights and duties of the parties  hereto.  If any such
proposed  action is commenced,  the legal  expenses and costs of such action and
any liabilities resulting therefrom shall be expenses,  costs and liabilities of
the Servicer and the Backup Servicer shall be entitled to be reimbursed therefor
by the Servicer.

     SECTION 9.5.  Delegation of Duties.  The Servicer may delegate duties under
this  Agreement  to an  Affiliate  of NAFI,  or,  pursuant to Section  4.2, to a
Sub-Servicer  with the prior written  consent of the Insurer  (unless an Insurer
Default shall have occurred and be continuing) and the Trust  Collateral  Agent.
The Servicer also may at any time perform through  sub-contractors  the specific
duties  of  (i)  repossession  of  Financed  Vehicles,  (ii)  tracking  Financed
Vehicles'  insurance and (iii) pursuing the collection of deficiency balances on
certain Liquidated Receivables, in each case, without the written consent of the
Insurer and may perform other specific  duties through such  sub-contractors  in
accordance with Servicer's customary servicing policies and procedures, with the
prior  consent of the Insurer;  provided,  however,  that no such  delegation or
sub-contracting  duties  by the  Servicer  shall  relieve  the  Servicer  of its
responsibility  with respect to such duties. So long as no Insurer Default shall
have  occurred  and be  continuing  neither NAFI or any party acting as Servicer
hereunder  shall appoint any  Sub-Servicer  hereunder  without the prior written
consent of the Insurer and the Trust Collateral Agent.

     SECTION 9.6.  Servicer Not to Resign.  Subject to the provisions of Section
9.3, the Servicer shall not resign from the obligations and duties imposed on it
by this Agreement as Servicer  except upon a  determination  that by reason of a
change in legal  requirements the performance of its duties under this Agreement
would cause it to be in violation of such legal  requirements  in a manner which
would have a material  adverse effect on the Servicer,  and the Insurer (so long
as an Insurer  Default  shall not have  occurred  and be  continuing)  or a Note
Majority (if an Insurer Default shall have occurred and be continuing)  does not
elect to waive the  obligations  of the  Servicer  to perform  the duties  which
render it legally unable to act or to delegate  those duties to another  Person.
Any such  determination  permitting  the  resignation  of the Servicer  shall be
evidenced by an Opinion of Counsel to such effect  delivered  and  acceptable to
the Trust Collateral Agent, the Owner Trustee and the Insurer (unless an Insurer
Default shall have occurred and be  continuing).  No resignation of the Servicer
shall become  effective until, so long as no Insurer Default shall have occurred
and be continuing,  the Backup  Servicer or an entity  acceptable to the Insurer
shall have assumed the  responsibilities  and obligations of the Servicer or, if
an Insurer Default shall have occurred and be continuing,  a successor  Servicer
that is an  Eligible  Servicer  shall  have  assumed  the  responsibilities  and
obligations of the Servicer.  Upon the resignation of the Servicer, the Servicer
shall give prompt written notice thereof to the Rating Agencies.
<PAGE>

                                   ARTICLE X

                                     DEFAULT

     SECTION 10.1.  Servicer  Termination Event. For purposes of this Agreement,
each of the following shall constitute a "Servicer  Termination Event" (whatever
the reason for such Servicer Termination Event and whether it shall be voluntary
or  involuntary  or be effected by operation of law or pursuant to any judgment,
decree  or  order  of  any  court  or  any  order,  rule  or  regulation  of any
administrative or governmental body):

     (a) Any failure by the Servicer to deliver, or cause to be delivered by any
Sub-Servicer,  to the Trust  Collateral Agent for distribution to Noteholders or
deposit  in the  Spread  Account  any  proceeds  or  payment  required  to be so
delivered  by the  Servicer or  Sub-Servicer  under the terms of this  Agreement
(including  deposits of the Purchase  Amount) that  continues  unremedied  for a
period of two  Business  Days (one  Business  Day with  respect  to  payment  of
Purchase  Amounts)  after  written  notice is received by the Servicer  from the
Trust  Collateral Agent or (unless an Insurer Default shall have occurred and be
continuing)  the Insurer or after  discovery  of such  failure by a  Responsible
Officer of the Servicer (but in no event later than five Business Days after the
Servicer is required to make such delivery or deposit); or

     (b) Any  failure by the  Servicer  to  observe or perform  any other of the
covenants or  agreements  on the part of the Servicer in this  Agreement,  which
failure  (i)  materially  and  adversely   affects  the  rights  of  Noteholders
(determined  without regard to the  availability of funds under the Note Policy)
or of the  Insurer  (unless  an  Insurer  Default  shall  have  occurred  and be
continuing), and (ii) continues unremedied for a period of thirty days after the
date on which written notice of such failure, requiring the same to be remedied,
shall have been given to the Servicer by the Trust  Collateral  Agent, or to the
Servicer  and the Trust  Collateral  Agent by the  Insurer  (or,  if an  Insurer
Default has occurred and is continuing,  Noteholders evidencing in the aggregate
not less than 25% of the aggregate  outstanding Principal Balance of the Notes);
or

     (c) The  entry of a decree or order  for  relief  by a court or  regulatory
authority having  jurisdiction in respect of the Servicer in an involuntary case
under the federal  bankruptcy  laws,  as now or hereafter in effect,  or another
present or future, federal bankruptcy,  insolvency or similar law, or appointing
a receiver,  liquidator,  assignee,  trustee,  custodian,  sequestrator or other
similar  official of the Servicer or of any substantial  part of its property or
ordering  the winding up or  liquidation  of the affairs of the  Servicer or the
commencement of an involuntary case under the federal bankruptcy laws, as now or
hereinafter in effect, or another present or future federal or state bankruptcy,
insolvency or similar law and such case is not dismissed  within 60 days; or
<PAGE>

     (d) The  commencement by the Servicer of a voluntary case under the federal
bankruptcy laws, as now or hereafter in effect,  or any other present or future,
federal or state,  bankruptcy,  insolvency or similar law, or the consent by the
Servicer to the appointment of or taking  possession by a receiver,  liquidator,
assignee,  trustee,  custodian,  sequestrator  or other similar  official of the
Servicer  or of any  substantial  part  of its  property  or the  making  by the
Servicer of an  assignment  for the benefit of  creditors  or the failure by the
Servicer  generally  to pay its debts as such debts  become due or the taking of
corporate action by the Servicer in furtherance of any of the foregoing;  or

     (e) Any representation,  warranty or statement of the Servicer made in this
Agreement or any certificate,  report or other writing delivered pursuant hereto
shall prove to be incorrect in any material respect as of the time when the same
shall have been made, and the incorrectness of such representation,  warranty or
statement  has a material  adverse  effect on the  interests  of the Trust,  the
Insurer or the  Noteholders  (or of the Seller if NAFI is the  Servicer)  in the
Receivables  (determined  without regard to the  availability of funds under the
Note Policy) and,  within 30 days after written  notice  thereof shall have been
given to the  Servicer by the Trust  Collateral  Agent or the Insurer (or, if an
Insurer  Default  shall have  occurred and be  continuing,  a  Noteholder),  the
circumstances or condition in respect of which such representation,  warranty or
statement was incorrect  shall not have been  eliminated or otherwise  cured; or

     (f) There shall have occurred an Insurance Agreement Event of Default or an
event of default  under any other  insurance  agreement to which the Insurer and
NAFI  and/or the  Seller or any other  affiliate  of NAFI are party;  or

     (g) The  Servicer  fails to deliver the report  required to be delivered by
the Servicer pursuant to Section 4.11 and such failure remains  unremedied for a
period of five days;

     (h) A claim is made under the Note Policy; or

     (i)  so  long  as an  Insurer  Default  shall  not  have  occurred  and  be
continuing,  the Insurer shall not have  delivered a Servicer  Extension  Notice
pursuant to Section 4.16.

     SECTION 10.2.  Consequences of a Servicer  Termination Event. If a Servicer
Termination Event shall occur, then, and in each and every such case, so long as
such  Servicer  Termination  Event  shall  not have  been  remedied,  the  Trust
Collateral Agent may, with the written consent of the Insurer (unless an Insurer
Default has occurred  and is  continuing),  and at the written  direction of the
Insurer  (or,  if an Insurer  Default has  occurred  and is  continuing,  a Note
Majority),  the Trust  Collateral  Agent  shall,  by notice  in  writing  to the
Servicer,  the Seller and the Backup  Servicer,  (i) terminate all of the rights
and  obligations  of  the  Servicer  under  this  Agreement  and  in  and to any
Receivables  and the  proceeds  thereof,  subject  to  compensation,  rights  of
reimbursement,  indemnity  and  limitation on liability to which the Servicer is
then  entitled and the rights of indemnity to which the Trust  Collateral  Agent
and the Insurer are then entitled  pursuant to Sections 9.2 and 9.4 hereof,  and
(ii)  subject to Section  10.4,  appoint the Backup  Servicer  as the  successor
<PAGE>

Servicer.  Such notice shall  specify,  to the extent  possible,  the timing and
method of transition of the  servicing of the  Receivables  from the Servicer to
the Backup Servicer or another successor  Servicer appointed pursuant to Section
10.4.  On and after the receipt by the Servicer of such written  notice and upon
the  effective  date of the  transfer  to the  Backup  Servicer  or  such  other
successor  Servicer  specified in such notice,  all  authority  and power of the
Servicer  under  this  Agreement,  whether  with  respect  to the  Notes  or the
Receivables or otherwise,  shall pass to and be vested in the Backup Servicer or
such other successor Servicer,  pursuant to and under this Section; and, without
limitation,  such  Person is hereby  authorized  and  empowered  to execute  and
deliver, on behalf of the Servicer,  an  attorney-in-fact or otherwise,  any and
all documents and other  instruments,  and to do or accomplish all other acts or
things  necessary  or  appropriate  to effect  the  purposes  of such  notice of
termination,  whether to complete the transfer and  endorsement or assignment of
the  Receivables  and related  documents,  or otherwise.  The Servicer agrees to
cooperate  with such  Person in  effecting  the  termination  of the  Servicer's
responsibilities  and  rights  hereunder,  including,  without  limitation,  the
transfer to such party for  administration by is of all cash amounts which shall
thereafter be received with respect to the Receivables.

     The Trust Collateral Agent shall not be charged with knowledge of any event
referred to in clauses (a) through (f) above unless a Responsible Officer of the
Trust Collateral Agent at the Corporate Trust Office obtains actual knowledge of
such event or  receives  written  notice of such event  from the  Servicer,  the
Insurer or from a Noteholder.  The Trust  Collateral  Agent  promptly shall send
written  notice  to  each  Rating  Agency  and  the  Insurer  of  each  Servicer
Termination  Event of which it is charged with knowledge in accordance  with the
preceding sentence.

     If the  Servicer is  terminated  pursuant to this  Section  10.2,  then the
Servicer shall bear all of the costs and expenses of transferring the duties and
obligations  of the  Servicer to a successor  Servicer  and except as  otherwise
agreed by the Insurer such costs and expenses shall not be reimbursable from the
Trust Property nor payable by the Seller or the Trust  Collateral  Agent. To the
extent not borne by the  Servicer as  described  above,  such costs and expenses
(including attorney's fees and expenses) shall be borne by the Trust Property in
accordance with Section 5.7(b)(ix).

     SECTION 10.3. Additional  Consequences of a Servicer Termination Event. The
successor  Servicer is authorized and empowered by this Agreement to execute and
deliver, on behalf of the terminated Servicer, as attorney-in-fact or otherwise,
any and all documents and other  instruments  and to do or accomplish  all other
acts or things necessary or appropriate to effect the purposes of such notice of
termination, whether to complete the transfer and endorsement of the Receivables
and the Other  Conveyed  Property  and  related  documents  to show the Trust as
lienholder or secured party on the related Lien Certificates,  or otherwise. The
terminated Servicer agrees to cooperate with the successor Servicer in effecting
the termination of the  responsibilities  and rights of the terminated  Servicer
under  this  Agreement,  including,  without  limitation,  the  transfer  to the
successor  Servicer for  administration  by it of all cash amounts that shall at
the time be held by the terminated  Servicer for deposit, or have been deposited
by the terminated  Servicer,  in the Collection  Account or thereafter  received
with respect to the  Receivables  and the delivery to the successor  Servicer of
all Receivable Files, Monthly Records and a computer tape in readable form as of
the most recent Business Day containing all information  necessary to enable the
successor  Servicer or a successor  Servicer to service the  Receivables and the
Other Conveyed  Property.  If requested by the Controlling  Party, the successor
<PAGE>

Servicer shall  terminate the Lockbox  Agreement and direct the Obligors to make
all payments under the Receivables  directly to the successor Servicer (in which
event the successor  Servicer  shall  process such  payments in accordance  with
Section 4.2(e)),  or to a lockbox  established by the successor  Servicer at the
direction of the Controlling Party, at the terminated  Servicer's  expense.  The
terminated  Servicer  shall  grant the Trust  Collateral  Agent,  the  successor
Servicer  and  the  Controlling   Party  reasonable  access  to  the  terminated
Servicer's premises at the terminated Servicer's expense.

     SECTION 10.4. Appointment of Successor.

     (a) On and after (i) the time the Servicer receives a notice of termination
pursuant to Section  10.2,  (ii) upon  non-extension  of the  servicing  term as
referred  to in Section  4.16,  or (iii) upon the  resignation  of the  Servicer
pursuant to Section 9.6,  the Backup  Servicer  (unless an  alternate  successor
Servicer  shall have been  appointed  pursuant to Section  10.4(b)) shall be the
successor in all respects to the Servicer in its capacity as servicer under this
Agreement and the transactions set forth or provided for in this Agreement,  and
shall be  subject to all the  rights,  responsibilities,  restrictions,  duties,
liabilities and termination  provisions  relating thereto placed on the Servicer
by the terms and provisions of this Agreement except as otherwise stated herein.
The Trust Collateral Agent and such successor shall take such action, consistent
with this Agreement, as shall be necessary to effectuate any such succession. If
a successor  Servicer is acting as  Servicer  hereunder,  it shall be subject to
term-to-term  servicing as referred to in Section 4.16 and to termination  under
Section 10.2 upon the occurrence of any Servicer Termination Event applicable to
it as Servicer.

     (b) The  Insurer,  or in the  event  that an  Insurer  Default  shall  have
occurred and be continuing a Note  Majority,  may exercise at any time its right
to appoint as successor  to the Servicer a Person other than the Person  serving
as  Backup  Servicer  at the  time,  and (in the  case of the  Insurer,  without
limiting its  obligations  under the Note Policy) shall have no liability to the
Trust  Collateral  Agent,  NAFI,  the Seller,  the Person then serving as Backup
Servicer, any Noteholders or any other Person if it does so. 

     (c) If,  pursuant to Section 10.4(a) and (b) hereof (i) the Backup Servicer
would become successor  Servicer and (ii) at such time the Backup Servicer shall
be legally unable or unwilling to act as Servicer,  the Backup  Servicer may, if
it shall be unwilling to so act, or shall,  if it is unable to so act,  appoint,
subject to the prior written  consent of the Insurer  (unless an Insurer Default
has occurred and is  continuing),  or, if an Insurer Default has occurred and is
continuing, the Backup Servicer, the Trust Collateral Agent or the Note Majority
may  petition a court of  competent  jurisdiction  to appoint,  any  experienced
servicer of motor  vehicle  installment  sales  contracts and notes having a net
worth of not less than $10,000,000 as the successor to the Servicer hereunder in
the assumption of all or any part of the responsibilities, duties or liabilities
of the Servicer hereunder.  Pending appointment of a successor Servicer pursuant
to the preceding  sentence,  the Backup Servicer shall act as successor Servicer
unless it is legally unable to do so, in which event the outgoing Servicer shall
continue to act as Servicer  until a successor  has been  appointed and accepted
such appointment.
<PAGE>

     (d)  Subject  to Section  9.6,  no  provision  of this  Agreement  shall be
construed  as  relieving  the Backup  Servicer of its  obligation  to succeed as
Servicer upon the  termination  of the Servicer  pursuant to Section  10.2,  the
resignation of the Servicer  pursuant to Section 9.6 or the non-extension of the
servicing  term of the Servicer,  as referred to in Section  4.14.  If, upon the
termination of the Servicer  pursuant to Section 10.2 or the  resignation of the
Servicer  pursuant to Section  9.6, a Person  other than the Backup  Servicer is
appointed as successor  Servicer  pursuant to subsection  (b) or (c) above,  the
Backup  Servicer  shall  not  be  relieved  of its  duties  as  Backup  Servicer
hereunder.  If the Backup Servicer becomes the successor Servicer at a time when
it is also serving as Trust Collateral Agent, it may seek to have a successor to
it appointed as Servicer.

     (e) In connection with any appointment of a successor  Servicer,  the Trust
Collateral  Agent  may  make  such  arrangements  for the  compensation  of such
successor Servicer out of payments on Receivables as it and such successor shall
agree;  provided however,  that no such compensation to such successor  Servicer
shall be in excess of that permitted the Servicer hereunder unless (A) the Trust
Collateral  Agent and the Insurer (or if an Insurer  Default has occurred and is
continuing,  a Note Majority) agree in writing to a larger Servicing Fee and (B)
each Rating Agency delivers a letter to the Trust Collateral Agent to the effect
that such larger  Servicing Fee will not result in a reduction or the withdrawal
of the rating assigned by such Rating Agency to the Notes; and provided further,
however,  that the Servicing Fee to a successor  Servicer,  including the Backup
Servicer,  shall not exceed a monthly  fee equal to 1/12th of the product of (i)
the aggregate  amount of the Outstanding  Principal  Balances of all Receivables
outstanding  as of the last day of the  related  Due Period and (ii) two percent
(2%).

     (f) The  Seller,  the Backup  Servicer,  the Trust  Collateral  Agent,  any
Sub-Servicer  and such successor  shall take such action,  consistent  with this
Agreement,  as shall be necessary to effectuate any such succession.  (g) If the
Backup  Servicer  shall  succeed to the  Servicer's  duties as  Servicer  of the
Receivables as provided  herein,  it shall do so in its individual  capacity and
not in its  capacity  as Trust  Collateral  Agent.  In the event that the Backup
Servicer shall not seek to appoint a successor  Servicer  within three months of
its  succession to the Servicer's  duties as servicer,  it shall resign as Trust
Collateral Agent pursuant to Section 10.8 and the Seller shall, with the written
consent of the Insurer  (unless an Insurer  Default  shall have  occurred and be
continuing),  appoint,  or  petition  a court  to  appoint,  a  successor  trust
collateral  agent. To the extent a successor  Servicer is appointed,  the Backup
Servicer  shall  not be  liable  for the  acts or  omissions  of such  successor
Servicer. 

     SECTION 10.5. [RESERVED]

     SECTION 10.6.  Notification  to Noteholders and Rating  Agencies.  Upon any
termination  of, or  appointment  of a  successor  to, the  Servicer,  the Trust
Collateral Agent shall give prompt written notice thereof to each Noteholder and
Rating  Agency.  
<PAGE>

     SECTION 10.7. Waiver of Past Defaults.  So long as no Insurer Default shall
have occurred and be  continuing,  the Insurer (or, if an Insurer  Default shall
have  occurred  and be  continuing,  the Note  Majority)  may,  on behalf of all
Noteholders,  waive  any  default  by the  Servicer  in the  performance  of its
obligations  hereunder  and its  consequences.  Upon any such  waiver  of a past
default,  such default shall cease to exist, and any Servicer  Termination Event
arising  therefrom  shall be deemed to have been  remedied for every  purpose of
this  Agreement.  No such waiver shall extend to any subsequent or other default
or impair any right consequent  thereto.  Written notice of such waiver shall be
given  promptly  to each  Rating  Agency.

     SECTION 10.8.  Termination of Trust Collateral  Agent. The Trust Collateral
Agent may at any time resign and be discharged from the trusts hereby created by
giving  written  notice  thereof to the Seller and Insurer.  Upon receiving such
notice of resignation, the Seller shall, with the written consent of the Insurer
(unless an Insurer Default has occurred and is continuing),  promptly  appoint a
successor trust collateral agent by written instrument, in triplicate,  one copy
of which instrument shall be delivered to the resigning Trust Collateral  Agent,
one copy to the Insurer and one copy to the successor trust collateral agent. If
no successor shall have been so appointed and have accepted  appointment  within
thirty (30) days after the giving of such notice of  resignation,  the resigning
Trust Collateral Agent may petition any court of competent  jurisdiction for the
appointment of a successor trust collateral agent. If the Trust Collateral Agent
shall resign voluntarily,  for any reason, except lack of eligibility,  then the
Trust  Collateral  Agent  shall  bear all of its costs and  expenses  (including
without  limitation its attorney's  fees) of  transferring  the trusteeship to a
successor trustee and such costs and expenses shall not be reimbursable from the
Trust  Property  nor  payable  by  the  Seller  or the  Servicer.

     If any of the following  events occur and shall be continuing,  the Insurer
(so long as an Insurer Default shall not have occurred and be  continuing),  or,
in the event that an Insurer  Default has occurred and is  continuing,  the Note
Majority, upon notice to the Noteholders, may terminate all of the duties of the
Trust Collateral Agent under this Agreement:

          (i) the Trust  Collateral  Agent shall  cease to meet the  eligibility
     requirements  for the Trustee as set forth in Section 6.11 of the Indenture
     and shall fail to resign after written request therefor by the Insurer, or

          (ii) the Trust  Collateral  Agent shall become  incapable of acting or
     shall be  adjudged  a bankrupt  or  insolvent,  or a receiver  of the Trust
     Collateral  Agent or of its  property  shall be  appointed,  or any  public
     officer  shall take charge or control of the Trust  Collateral  Agent or of
     its property or affairs for the purpose of rehabilitation,  conservation or
     liquidation or

          (iii) the Trust  Collateral  Agent has  failed to  perform  its duties
     hereunder.  

     On or after the  receipt  by the  Trust  Collateral  Agent of such  written
notice,  all authority,  power,  obligations and  responsibilities  of the Trust
Collateral Agent under this Agreement,  whether with respect to the Notes or the
Other Conveyed Property or otherwise,  automatically shall pass to, be vested in
and  become  obligations  and  responsibilities  of such other  successor  trust
collateral agent appointed by the Controlling  Party.  Nothing  contained herein
shall be deemed to release the Trust Collateral Agent from any obligation.
<PAGE>

         The  Insurer  (or if an  Insurer  Default  shall have  occurred  and be
continuing,  Noteholders holding Notes evidencing in the aggregate a majority of
the outstanding Principal Balance of the Notes) at any time may remove the Trust
Collateral  Agent and  appoint a  successor  trust  collateral  agent by written
instrument  or  instruments,  in  triplicate,  signed  by the  Insurer  or  such
Noteholders, as the case may be, or their attorneys-in-fact duly authorized, one
complete set of which instruments shall be delivered to the Seller, one complete
set to the  Trust  Collateral  Agent  so  removed  and one  complete  set to the
successor trust collateral agent so appointed.

     SECTION 10.9. Successor to Servicer.

     (a) The Backup  Servicer,  in its capacity as  successor  to the  Servicer,
shall perform such duties and only such duties as are  specifically set forth in
this  Agreement  with  respect  to  the  assumption  of  any  servicing  duties,
including,  without limitation, to supervise,  verify, monitor or administer the
performance  of the Servicer and no implied  covenants or  obligations  shall be
read into this Agreement against the Backup Servicer.

     (b) In the  absence  of bad faith or  negligence  on its part,  the  Backup
Servicer  may  conclusively  rely  as to the  truth  of the  statements  and the
correctness of the opinions  expressed  therein,  upon  certificates or opinions
furnished to the Backup  Servicer and  conforming  to the  requirements  of this
Agreement;  but in the ease of any such  certificates or opinions,  which by any
provision  hereof  are  specifically  required  to be  furnished  to the  Backup
Servicer,  the Backup  Servicer shall be under a duty to examine the same and to
determine  whether or not they  conform to the  requirements  of this  servicing
agreement. 

     (c) The Backup  Servicer  shall have no liability  for any actions taken or
omitted by the Servicer. 

                                   ARTICLE XI

                                   TERMINATION

     SECTION 11.1. Optional Purchase of All Receivables.

     (a) On the last day of any Due Period as of which the Pool Balance shall be
less  than or equal  to 10% of the  Original  Pool  Balance  plus the  aggregate
Principal Balance of the Subsequent  Receivables,  if any, sold to the Trust, as
of their  respective  Cut-off  Dates,  the Seller or the Servicer shall have the
option to purchase the Owner Trust Estate,  other than the Trust  Accounts (with
the consent of the Insurer if such  purchase  would  result in a claim on either
Policy or would  result in any amount  owing to any  Noteholder  or the  Insurer
under the Insurance Agreement  remaining unpaid);  provided,  however,  that the
amount to be paid for such  purchase  (as set forth in the  following  sentence)
shall be sufficient to pay the full amount of  principal,  premium,  if any, and
interest then due and payable on the Notes. To exercise such option,  the Seller
shall (i) deliver written notice of such purchase to the Trust  Collateral Agent
and the Servicer not later than the  fifteenth  day of the month next  preceding
the month in which such  purchase  will  occur,  and (ii)  deposit  pursuant  to
Section 5.6 in the Collection  Account an amount equal to the aggregate Purchase
Amount  for  the  Receivables  (including  Liquidated  Receivables),   plus  the
appraised  value of any  other  property  held by the  Trust,  such  value to be
determined by an appraiser mutually agreed upon by the Servicer, the Insurer and
the Trust  Collateral  Agent,  and shall  succeed to all interests in and to the
Trust.  Written  notice of the  exercise of the option to purchase  described in
this Section 11.1(a) shall be given to each Rating Agency by the Seller.
<PAGE>

     (b) Upon any sale of the assets of the Trust pursuant to Section 9.1 of the
Trust  Agreement,  the Servicer  shall  instruct the Trust  Collateral  Agent to
deposit the proceeds  from such sale after all  payments and reserves  therefrom
(including the expenses of such sale) have been made (the "Insolvency Proceeds")
in the Collection  Account.

     (c) Notice of any  termination  of the Trust shall be given by the Servicer
to the Owner  Trustee,  the  Trustee,  the Trust  Collateral  Agent,  the Backup
Servicer,  the Insurer and the Rating Agencies as soon as practicable  after the
Servicer  has  received  notice  thereof.   Such  notice  shall  state  (i)  the
Distribution Date upon or with respect to which final payment of the Notes shall
be made upon  presentation and surrender of the Notes at the office of the Trust
Collateral Agent herein  designated,  (ii) the amount of any such final payment,
(iii) that the Record Date otherwise applicable to such Distribution Date is not
applicable,  payments  being made only upon  presentation  and  surrender of the
Notes at the office of the Trust Collateral Agent therein  specified and (iv) no
amounts will thereafter be payable under the Notes.

                                  ARTICLE XII

                      ADMINISTRATIVE DUTIES OF THE SERVICER

     SECTION 12.1. Administrative Duties.

     (a) Duties with Respect to the  Indenture.  The Servicer  shall perform all
its duties and the duties of the Issuer under the  Indenture.  In addition,  the
Servicer shall consult with the Owner Trustee as the Servicer deems  appropriate
regarding  the duties of the Issuer  under the  Indenture.  The  Servicer  shall
monitor the  performance  of the Issuer and shall advise the Owner  Trustee when
action is necessary to comply with the Issuer's duties under the Indenture.  The
Servicer  shall  prepare  for  execution  by  the  Issuer  or  shall  cause  the
preparation  by  other  appropriate  Persons  of all  such  documents,  reports,
filings,  instruments,  certificates and opinions as it shall be the duty of the
Issuer to prepare, file or deliver pursuant to the Indenture.  In furtherance of
the foregoing,  the Servicer shall take all necessary action that is the duty of
the Issuer to take pursuant to the  Indenture,  including,  without  limitation,
pursuant to Sections 2.7, 3.5, 3.6, 3.7, 3.9,  3.10,  3.17,  5.1, 7.3, 8.3, 9.2,
9.3, 11.1 and 11.15 of the Indenture.

     (b) Duties with Respect to the Issuer.

          (i) In  addition  to the  duties  of the  Servicer  set  forth in this
     Agreement or any of the Transaction  Documents,  the Servicer shall perform
     such  calculations  and shall  prepare for  execution  by the Issuer or the
     Owner Trustee or shall cause the preparation by other  appropriate  Persons
     of all such documents,  reports,  filings,  instruments,  certificates  and
     opinions  as it shall be the duty of the  Issuer  or the Owner  Trustee  to
     prepare,  file  or  deliver  pursuant  to  this  Agreement  or  any  of the
<PAGE>

     Transaction  Documents or under state and federal tax and securities  laws,
     and at the request of the Owner Trustee shall take all  appropriate  action
     that it is the duty of the Issuer to take pursuant to this Agreement or any
     of the Transaction Documents,  including,  without limitation,  pursuant to
     Sections  2.6 and  2.11 of the  Trust  Agreement.  In  accordance  with the
     directions  of  the  Issuer  or  the  Owner  Trustee,  the  Servicer  shall
     administer,  perform or supervise the performance of such other  activities
     in connection with the Collateral (including the Transaction  Documents) as
     are not covered by any of the  foregoing  provisions  and as are  expressly
     requested by the Issuer or the Owner Trustee and are reasonably  within the
     capability of the Servicer.

          (ii)  Notwithstanding  anything  in  this  Agreement  or  any  of  the
     Transaction  Documents to the contrary,  the Servicer  shall be responsible
     for promptly  notifying the Owner Trustee and the Trust Collateral Agent in
     the event that any withholding tax is imposed on the Issuer's  payments (or
     allocations  of income) to an Owner (as defined in the Trust  Agreement) as
     contemplated  by this  Agreement.  Any such notice  shall be in writing and
     specify the amount of any  withholding  tax  required to be withheld by the
     Owner Trustee or the Trust  Collateral  Agent  pursuant to such  provision.

          (iii)  Notwithstanding  anything in this Agreement or the  Transaction
     Documents  to  the  contrary,   the  Servicer  shall  be  responsible   for
     performance  of the duties of the Issuer or the Seller set forth in Section
     5.1(a),  (b),  (c) and (d) of the Trust  Agreement  with  respect to, among
     other  things,  accounting  and  reports to Owners (as defined in the Trust
     Agreement).  

          (iv) The Servicer  shall perform the duties of the Servicer  specified
     in  Section  10.2  of the  Trust  Agreement  required  to be  performed  in
     connection  with the  resignation or removal of the Owner Trustee,  and any
     other duties expressly  required to be performed by the Servicer under this
     Agreement  or any of the  Transaction  Documents.  

          (v) In  carrying  out  the  foregoing  duties  or  any  of  its  other
     obligations under this Agreement,  the Servicer may enter into transactions
     with or otherwise deal with any of its Affiliates;  provided, however, that
     the terms of any such  transactions or dealings shall be in accordance with
     any  directions  received  from the Issuer and shall be, in the  Servicer's
     opinion,  no less  favorable  to the Issuer in any  material  respect.  

     (c) Tax Matters.  The  Servicer  shall  prepare and file,  on behalf of the
Seller, all tax returns, tax elections,  financial statements and such annual or
other reports of the Issuer as are necessary for  preparation  of tax reports as
provided in Article V of the Trust Agreement, including without limitation forms
1099 and 1066. All tax returns will be signed by the Seller.

     (d) Non-Ministerial Matters. With respect to matters that in the reasonable
judgment of the Servicer are  non-ministerial,  the Servicer  shall not take any
action  pursuant to this Article XII unless within a reasonable  time before the
taking of such action, the Servicer shall have notified the Owner Trustee, Trust
Collateral  Agent and the Insurer of the proposed  action and the Owner  Trustee
and,  with respect to items (A),  (B), (C) and (D) below,  the Insurer shall not
have withheld consent or provided an alternative  direction.  For the purpose of
the  preceding  sentence,  "non-ministerial  matters"  shall  include:  
<PAGE>

          (A) the amendment of or any supplement to the Indenture;

          (B) the  initiation  of any claim or  lawsuit  by the  Issuer  and the
     compromise of any action, claim or lawsuit brought by or against the Issuer
     (other than in connection with the collection of the Receivables);  

          (C) the amendment,  change or modification of this Agreement or any of
     the   Transaction   Documents;   

          (D) the  appointment of successor Note  Registrars,  successor  Paying
     Agents and successor  Trustees pursuant to the Indenture or the appointment
     of  Successor  Servicers  or the  consent  to the  assignment  by the  Note
     Registrar,  Paying Agent or Trustee of its obligations under the Indenture;
     and  

          (E)  the  removal  of the  Trustee  or  the  Trust  Collateral  Agent.

     (e) Exceptions. Notwithstanding anything to the contrary in this Agreement,
except as expressly provided herein or in the other Transaction  Documents,  the
Servicer,  in its capacity hereunder,  shall not be obligated to, and shall not,
(1) make any payments to the Noteholders  under the Transaction  Documents,  (2)
sell the Indenture Trust Property pursuant to Section 5.4 of the Indenture,  (3)
take any other  action that the Issuer  directs the  Servicer not to take on its
behalf or (4) in connection with its duties hereunder assume any indemnification
obligation of any other Person.

     (f) Notwithstanding anything to the contrary in this Agreement, neither the
Backup  Servicer  nor  any  successor  Servicer  shall  be  responsible  for any
obligations or duties of the Servicer under Section 12.1.

     SECTION 12.2.  Records.  The Servicer shall maintain  appropriate  books of
account and records relating to services  performed under this Agreement,  which
books of account and records  shall be accessible  for  inspection by the Issuer
and the Trust Collateral Agent at any time during normal business hours.

     SECTION 12.3.  Additional  Information  to be Furnished to the Issuer.  The
Servicer shall furnish to the Issuer and the Trust Collateral Agent from time to
time such additional  information regarding the Collateral as the Issuer and the
Trust Collateral Agent shall reasonably request.

                                  ARTICLE XIII

                            MISCELLANEOUS PROVISIONS

     SECTION 13.1. Amendment.
<PAGE>

     (a) This Agreement may be amended from time to time by the parties  hereto,
with  the  consent  of the  Trustee  (which  consent  may  not  be  unreasonably
withheld),  with the prior written consent of the Insurer (so long as no Insurer
Default has  occurred and is  continuing)  but without the consent of any of the
Noteholders,  to cure any ambiguity,  to correct or supplement any provisions in
this  Agreement,  to comply with any  changes in the Code,  or to make any other
provisions  with respect to matters or questions  arising  under this  Agreement
which shall not be  inconsistent  with the  provisions of this  Agreement or the
Insurance  Agreement;  provided,  however,  that such action shall not adversely
affect in any material respect the interests of any Noteholder or the Insurer.

     This Agreement may also be amended from time to time by the parties hereto,
with the consent of the  Insurer,  the consent of the Trustee and the consent of
the  Holders of Notes  evidencing  not less than a majority  of the  outstanding
principal  amount of the Notes  (which  consent of such  Holders of Notes  given
pursuant  to this  Section  13.1 or  pursuant  to any  other  provision  of this
Agreement  shall be  conclusive  and  binding  on such  Holder and on all future
Holders of such securities and of any Security issued upon the transfer  thereof
or in  exchange  thereof  or in lieu  thereof  whether or not  notation  of such
consent is made upon the security)  for the purpose of adding any  provisions to
or changing in any manner or eliminating any of the provisions of this Agreement
or of modifying in any manner the rights of the Noteholders;  provided, however,
that no such amendment shall (a) increase or reduce in any manner the amount of,
or accelerate or delay the timing of,  collections of payments on Receivables or
distributions  that  shall  be  required  to be  made  for  the  benefit  of the
Noteholders, or (b) reduce the aforesaid percentage of the outstanding principal
amount of the Notes and the Note  Balance,  the Holders of which are required to
consent to any such  amendment,  without  the  consent of the Holders of all the
outstanding Notes.

     Promptly  after the execution of any such  amendment or consent,  the Trust
Collateral  Agent shall furnish  written  notification  of the substance of such
amendment or consent to each Noteholder and each Rating Agency.  In addition,  a
copy of the final executed amendment shall be delivered to each Rating Agency.

     It shall not be necessary for the consent of  Noteholders  pursuant to this
Section to approve the particular form of any proposed amendment or consent, but
it shall be sufficient if such consent shall approve the substance thereof.  The
manner of  obtaining  such  consents  (and any  other  consents  of  Noteholders
provided for in this  Agreement)  and of  evidencing  the  authorization  of any
action by Noteholders  shall be subject to such  reasonable  requirements as the
Trustee or the Owner  Trustee,  as  applicable,  may  prescribe,  including  the
establishment of record dates.

     The Owner  Trustee,  the Trust  Collateral  Agent and the Trustee  may, but
shall not be obligated to, enter into any amendment  which affects the Issuer's,
the  Owner  Trustee's,  the  Trust  Collateral  Agent's  or  the  Trustee's,  as
applicable, own rights, duties or immunities under this Agreement or otherwise.

     Prior to the execution of any amendment to this Agreement,  the Trustee and
the Trust  Collateral  Agent shall be entitled to receive and rely  conclusively
upon an Opinion of Counsel  stating  that the  execution  of such  amendment  is
authorized or permitted by this Agreement and that all  conditions  precedent to
the execution and delivery of such amendment have been satisfied.
<PAGE>

     (b)  Notwithstanding  anything  to the  contrary  contained  in  subsection
13.1(a)  above,  the  provisions  of the  Agreement  relating  to (i) the Spread
Account  Agreement,  the Series 1998-1 Spread Account,  the Requisite  Amount, a
Trigger  Event or any  component  definition  of a  Trigger  Event  and (ii) any
additional  sources  of funds  which may be added to the  Series  1998-1  Spread
Account or uses of funds on deposit in the Series 1998-1  Spread  Account may be
amended  in any  respect  by the  Seller,  the  Servicer,  the  Insurer  and the
Collateral  Agent (the  consent of which shall not be  withheld or delayed  with
respect to any amendment that does not adversely  affect the  Collateral  Agent)
without the consent of, or notice to, the Noteholders.

     SECTION 13.2. Protection of Title to Trust.

     (a) The Seller shall execute and file such  financing  statements and cause
to be executed and filed such continuation statements, all in such manner and in
such places as may be required by law fully to  preserve,  maintain  and protect
the interest of the Issuer and the interests of the Trust  Collateral  Agent and
the  Insurer  in the  Receivables  and the Other  Conveyed  Property  and in the
proceeds  thereof.  The Seller shall  deliver (or cause to be  delivered) to the
Insurer,  the Owner Trustee and the Trust Collateral Agent  file-stamped  copies
of, or filing  receipts for, any document  filed as provided  above,  as soon as
available following such filing.

     (b) Neither the Seller nor the Servicer shall change its name,  identity or
corporate  structure in any manner that would, could or might make any financing
statement or continuation statement filed in accordance with paragraph (a) above
seriously  misleading  within the meaning of Section 9-402(7) of the UCC, unless
it shall have given the Insurer,  the Owner Trustee,  the Trust Collateral Agent
and the Trustee at least thirty  days' prior  written  notice  thereof and shall
have promptly filed  appropriate  amendments to all previously  filed  financing
statements or continuation statements.  Promptly upon such filing, the Seller or
the  Servicer,  as the case may be, shall  deliver an Opinion of Counsel in form
and substance reasonably satisfactory to the Insurer, the Trust Collateral Agent
and the Trustee,  stating either (A) all financing  statements and  continuation
statements have been executed and filed that are necessary fully to preserve and
protect  the  interest  of the  Issuer  and the  Trust  Collateral  Agent in the
Receivables,  and  reciting  the details of such  filings or  referring to prior
Opinions of Counsel in which such details are given, or (B) no such action shall
be necessary to preserve and protect such  interest.  

     (c) Each of the Seller and the Servicer  shall have an  obligation  to give
the Insurer,  the Owner Trustee,  the Trust  Collateral Agent and the Trustee at
least 60 days' prior written notice of any relocation of its principal executive
office if, as a result of such relocation,  the applicable provisions of the UCC
would require the filing of any amendment of any previously  filed  financing or
continuation statement or of any new financing statement and shall promptly file
any such  amendment.  The Servicer  shall at all times maintain each office from
which it shall service Receivables,  and its principal executive office,  within
the United States of America.
<PAGE>

     (d) The Servicer shall maintain  accounts and records as to each Receivable
accurately and in sufficient  detail to permit (i) the reader thereof to know at
any time the status of such Receivable,  including  payments and recoveries made
and  payments  owing  (and the nature of each) and (ii)  reconciliation  between
payments or recoveries on (or with respect to) each  Receivable  and the amounts
from  time to time  deposited  in the  Collection  Account  in  respect  of such
Receivable.

     (e) The  Servicer  shall  maintain  or cause to be  maintained,  a computer
systems so that,  from and after the time of sale under  this  Agreement  of the
Receivables to the Issuer,  such master computer  records  (including any backup
archives) that refer to a Receivable  shall indicate clearly the interest of the
Trust  in such  Receivable  and that  such  Receivable  is  owned by the  Trust.
Indication  of the Trust's  interest in a  Receivable  shall be deleted  from or
modified on such computer  systems when, and only when,  the related  Receivable
shall have been paid in full or repurchased by NAFI or the Seller.

     (f) If at any  time the  Seller  or NAFI  shall  propose  to sell,  grant a
security   interest  in  or  otherwise   transfer  any  interest  in  automotive
receivables  to any  prospective  purchaser,  lender  or other  transferee,  the
Servicer shall give to such  prospective  purchaser,  lender or other transferee
computer  tapes,  records or  printouts  (including  any  restored  from  backup
archives) that, if they shall refer in any manner  whatsoever to any Receivable,
shall  indicate  clearly that such  Receivable has been sold and is owned by the
Trust unless such Receivable has been paid in full or repurchased by NAFI or the
Seller.

     (g) Upon  request,  the Servicer  shall furnish or cause to be furnished to
the Insurer,  the Owner Trustee or to the Trustee,  at any time upon request,  a
list of all  Receivables  (by contract  number and name of Obligor) then held as
part  of  the  Trust,  together  with  a  reconciliation  of  such  list  to the
Receivables Schedule and to each of the Servicer's Certificates furnished before
such request indicating removal of Receivables from the Trust. The Trustee shall
hold any such  list and  Receivables  Schedule  for  examination  by  interested
parties  during  normal  business  hours  at the  Corporate  Trust  Office  upon
reasonable notice by such Persons of their desire to conduct an examination. 

     (h) The Servicer shall deliver to the Insurer, the Owner Trustee, the Trust
Collateral  Agent and the Trustee:  

          (A)  simultaneously  with the  execution and delivery of the Agreement
     and, if required pursuant to Section 13.1, of each amendment, an Opinion of
     Counsel stating that, in the opinion of such Counsel, in form and substance
     reasonably satisfactory to the Insurer, either (A) all financing statements
     and continuation statements have been executed and filed that are necessary
     fully to preserve  and protect the interest of the Trust and the Trustee in
     the  Receivables,  and reciting the details of such filings or referring to
     prior  Opinions of Counsel in which such details are given,  or (B) no such
     action shall be necessary to preserve and protect such  interest or (C) any
     action which is necessary to preserve and protect such interest  during the
     following 12-month period; and
<PAGE>

          (B) within 90 days after the beginning of each calendar year beginning
     with the first  calendar  year  beginning  more than three months after the
     Cut-off Date, an Opinion of Counsel,  dated as of a date during such 90-day
     period,  stating  that,  in the  opinion  of such  counsel,  either (A) all
     financing  statements and  continuation  statements  have been executed and
     filed that are necessary  fully to preserve and protect the interest of the
     Trust and the Trustee in the Receivables,  and reciting the details of such
     filings or referring to prior Opinions of Counsel in which such details are
     given,  or (B) no such action  shall be  necessary  to preserve and protect
     such  interest.  

     Each  Opinion  of  Counsel  referred  to in clause  (1) or (2) above  shall
specify any action necessary (as of the date of such opinion) to be taken in the
following year to preserve and protect such interest.

     (i) The Servicer shall permit the Trustee,  the Trust Collateral Agent, the
Insurer and their  respective  agents,  during  regular  business hours and upon
reasonable  advance notice,  to inspect and make copies of the records regarding
any Receivables or any other portion of the Receivables.

     SECTION 13.3. Notices.  All demands,  notices and communications upon or to
the Seller,  the Servicer,  the Owner Trustee,  the Trustee,  the Insurer or the
Rating Agencies under this Agreement shall be in writing,  personally delivered,
or mailed by certified mail, or sent by confirmed  telecopier  transmission  and
shall be  deemed to have been duly  given  upon  receipt  (a) in the case of the
Seller to National  Financial Auto Funding Trust,  One Park Place, 621 N.W. 53rd
Street,  Boca Raton,  Florida 33487, (b) in the case of the Servicer to National
Auto Finance  Company,  Inc., One Park Place,  621 N.W. 53rd Street,  Suite 200,
Boca Raton,  Florida 33487,  (c) in the case of the Issuer or the Owner Trustee,
at 1100 North Market Street,  Rodney Square North,  Wilmington,  Delaware 19890;
Attention: Corporate Trust Administration, (d) in the case of the Trustee or the
Trust Collateral Agent, at 311 West Monroe Street, Chicago,  Illinois 60606, (e)
in the case of the  Insurer,  to Financial  Security  Assurance  Inc.,  350 Park
Avenue, New York, New York 10022; Attention: Senior Vice President, Surveillance
(in each case in which notice or other  communication to the Insurer refers to a
Servicer Termination Event, a claim on a Policy, a Deficiency Notice pursuant to
Section 5.5 of this  Agreement or with  respect to which  failure on the part of
the Insurer to respond shall be deemed to constitute consent or acceptance, then
a copy  of  such  notice  or  other  communication  should  also  be sent to the
attention of each of the General Counsel and the Head -Financial  Guaranty Group
and  shall be  marked to  indicate  "URGENT  MATERIAL  ENCLOSED")  Telecopier  #
212-339-3518,  (f) in the case of Moody's,  to Moody's Investors Service,  Inc.,
ABS  Monitoring  Department,  99  Church  Street,  New  York,  New  York  10007,
Telecopier # 212-553-0344, and (g) in the case of Standard & Poor's, to Standard
& Poor's  Ratings  Group,  25 Broadway - 15th Floor,  New York,  New York 10004,
Attention: Asset Backed Surveillance Department, Telecopier # 212- 208-1582. Any
notice  required or  permitted  to be mailed to a  Noteholder  shall be given by
first class mail, postage prepaid, at the address of such Noteholder as shown in
the  Note  Register,  as  applicable.  Any  notice  so  mailed  within  the time
prescribed in the  Agreement  shall be  conclusively  presumed to have been duly
given, whether or not the Noteholder shall receive such notice.
<PAGE>

     SECTION 13.4. Assignment.  This Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective successors and permitted
assigns.  Notwithstanding  anything to the contrary contained herein,  except as
provided in  Sections  8.4 and 9.3 and as  provided  in the  provisions  of this
Agreement concerning the resignation of the Servicer,  this Agreement may not be
assigned by the Seller or the Servicer  without the prior written consent of the
Owner Trustee, the Trust Collateral Agent, the Trustee and the Insurer (or if an
Insurer  Default shall have occurred and be continuing the  Noteholders  holding
not less than 66% of the principal  amount of the  outstanding  Notes).  

     SECTION  13.5.  Limitations  on Rights of Others.  The  provisions  of this
Agreement  are solely for the benefit of the parties  hereto and for the benefit
of the Trustee and the Noteholders,  as third-party  beneficiaries.  The Insurer
and its  successors  and  assigns  shall  be a  third-party  beneficiary  to the
provisions  of this  Agreement,  and shall be entitled to rely upon and directly
enforce such  provisions of this  Agreement so long as no Insurer  Default shall
have occurred and be continuing.  Except as expressly stated  otherwise  herein,
any right of the Insurer to direct, appoint, consent to, approve of, or take any
action under this  Agreement,  shall be a right  exercised by the Insurer in its
sole and  absolute  discretion.  The Insurer may  disclaim any of its rights and
powers under this Agreement (but not its duties and  obligations  under the Note
Policy) upon delivery of a written notice to the Owner Trustee.  Nothing in this
Agreement,  whether express or implied,  shall be construed to give to any other
Person any legal or equitable  right,  remedy or claim in the Owner Trust Estate
or under  or in  respect  of this  Agreement  or any  covenants,  conditions  or
provisions contained herein. 

     SECTION  13.6.  Severability.  Any  provision  of  this  Agreement  that is
prohibited or unenforceable in any jurisdiction  shall, as to such jurisdiction,
be ineffective to the extent of such  prohibition  or  unenforceability  without
invalidating  the  remaining  provisions  hereof,  and any such  prohibition  or
unenforceability   in  any   jurisdiction   shall  not   invalidate   or  render
unenforceable such provision in any other  jurisdiction.  

     SECTION 13.7. Separate Counterparts.  This Agreement may be executed by the
parties  hereto in separate  counterparts,  each of which when so  executed  and
delivered  shall  be an  original,  but all  such  counterparts  shall  together
constitute but one and the same instrument. 

     SECTION 13.8.  Headings.  The headings of the various Articles and Sections
herein are for  convenience  of reference only and shall not define or limit any
of the terms or provisions hereof.  

     SECTION  13.9.   Governing  Law.  THIS  AGREEMENT  SHALL  BE  CONSTRUED  IN
ACCORDANCE  WITH THE LAWS OF THE STATE OF NEW  YORK,  WITHOUT  REFERENCE  TO ITS
CONFLICT OF LAW  PROVISIONS,  AND THE  OBLIGATIONS,  RIGHTS AND  REMEDIES OF THE
PARTIES  HEREUNDER  SHALL BE DETERMINED IN  ACCORDANCE  WITH SUCH LAWS.  

     SECTION 13.10.  Assignment to Trustee.  The Seller hereby  acknowledges and
consents to any mortgage, pledge, assignment and grant of a security interest by
the Issuer to the  Trustee  pursuant  to the  Indenture  for the  benefit of the
Noteholders  and the Insurer of all right,  title and interest of the Issuer in,
to and under the Receivables and/or the assignment of any or all of the Issuer's
rights and  obligations  hereunder to the Trustee.  
<PAGE>

     SECTION  13.11.   Nonpetition  Covenants.  (a)  Notwithstanding  any  prior
termination of this  Agreement,  the Servicer and the Seller shall not, prior to
the date which is one year and one day after the  termination  of this Agreement
with respect to the Issuer, acquiesce, petition or otherwise invoke or cause the
Issuer to  invoke  the  process  of any court or  government  authority  for the
purpose of  commencing or sustaining a case against the Issuer under any federal
or state  bankruptcy,  insolvency  or  similar  law or  appointing  a  receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar official
of the Issuer or any substantial  part of its property,  or ordering the winding
up or  liquidation  of the  affairs  of the  Issuer.  

     (b) Notwithstanding  any prior termination of this Agreement,  the Servicer
shall not, prior to the date that is one year and one day after the  termination
of this  Agreement  with  respect  to the  Seller,  acquiesce  to,  petition  or
otherwise  invoke or cause the  Seller to  invoke  the  process  of any court or
government  authority for the purpose of commencing or sustaining a case against
the Seller  under any federal or state  bankruptcy,  insolvency  or similar law,
appointing a receiver, liquidator,  assignee, trustee, custodian,  sequestrator,
or other similar official of the Seller or any substantial part of its property,
or ordering the winding up or liquidation of the affairs of the Seller.

     SECTION  13.12.  Limitation of Liability of Owner Trustee,  Trustee,  Trust
Collateral Agent and Backup Servicer.

     (a)  Notwithstanding  anything  contained  herein  to  the  contrary,  this
Agreement  has  been  countersigned  by  Wilmington  Trust  Company  not  in its
individual  capacity but solely in its  capacity as Owner  Trustee of the Issuer
and in no event shall  Wilmington  Trust Company in its individual  capacity or,
except as expressly  provided in the Trust Agreement,  as Owner Trustee have any
liability for the representations,  warranties,  covenants,  agreements or other
obligations of the Issuer  hereunder or in any of the  certificates,  notices or
agreements  delivered  pursuant hereto, as to all of which recourse shall be had
solely to the assets of the Issuer.  For all purposes of this Agreement,  in the
performance of its duties or obligations  hereunder or in the performance of any
duties or  obligations  of the  Issuer  hereunder,  the Owner  Trustee  shall be
subject  to,  and  entitled  to the  benefits  of, the terms and  provisions  of
Articles VI, VII, VIII and X of the Trust Agreement.

     (b)  Notwithstanding  anything  contained  herein  to  the  contrary,  this
Agreement has been  countersigned  by Chase  Manhattan  Bank Delaware not in its
individual  capacity  but solely in its capacity as Trustee of the Seller and in
no event shall Chase Manhattan Bank Delaware in its individual capacity have any
liability for the representations,  warranties,  covenants,  agreements or other
obligations of the Seller  hereunder or in any of the  certificates,  notices or
agreements  delivered  pursuant hereto, as to all of which recourse shall be had
solely to the  assets of the  Seller.

     (c)  Notwithstanding  anything  contained  herein  to  the  contrary,  this
Agreement  has been  executed and delivered by Harris Trust and Savings Bank not
in its  individual  capacity  but  solely as Trust  Collateral  Agent and Backup
<PAGE>

Servicer and in no event shall Harris Trust and Savings Bank, have any liability
for the representations,  warranties, covenants, agreements or other obligations
of the Issuer  hereunder or in any of the  certificates,  notices or  agreements
delivered  pursuant  hereto,  as to all of which recourse shall be had solely to
the assets of the Issuer. 

     (d) In no event shall  Wilmington  Trust Company,  in any of its capacities
hereunder,  be deemed to have assumed any duties of the Owner  Trustee under the
Delaware Business Trust Statute, common law, or the Trust Agreement.

     SECTION  13.13.  Independence  of the  Servicer.  For all  purposes of this
Agreement,  the Servicer  shall be an  independent  contractor  and shall not be
subject to the  supervision  of the Issuer,  the Trust  Collateral  Agent or the
Owner  Trustee  with  respect  to  the  manner  in  which  it  accomplishes  the
performance of its obligations  hereunder.  Unless expressly  authorized by this
Agreement,  the Servicer  shall have no  authority  to act for or represent  the
Issuer or the Owner  Trustee  in any way and  shall not  otherwise  be deemed an
agent of the Issuer or the Owner Trustee.

     SECTION 13.14.  No Joint Venture.  Nothing  contained in this Agreement (i)
shall  constitute  the Servicer and either of the Issuer or the Owner Trustee as
members   of   any   partnership,   joint   venture,   association,   syndicate,
unincorporated  business or other  separate  entity,  (ii) shall be construed to
impose any  liability  as such on any of them or (iii) shall be deemed to confer
on any of  them  any  express,  implied  or  apparent  authority  to  incur  any
obligation  or  liability  on behalf of the others.  

     SECTION 13.15. Insurer as Controlling Party. Each Noteholder by purchase of
the Notes held by it acknowledges that as partial  consideration of the issuance
of the Note Policy,  the Insurer shall have certain rights hereunder for so long
as no Insurer  Default  shall have  occurred  and be  continuing.  So long as an
Insurer Default has occurred and is continuing, any provision giving the Insurer
the right to direct, appoint or consent to, approve of, or take any action under
this Agreement  shall be inoperative  during the period of such Insurer  Default
and such right shall  instead vest in the Trust  Collateral  Agent acting at the
written  direction of the Noteholders of Notes.  The Insurer may disclaim any of
its rights and powers under this Agreement  (but not its duties and  obligations
under the Note Policy) upon delivery of a written notice to the Trust Collateral
Agent.  The Insurer may give or withhold  any consent  hereunder in its sole and
absolute discretion.


<PAGE>
     IN WITNESS WHEREOF,  the parties hereto have caused this Sale and Servicing
Agreement to be duly executed and delivered by their  respective duly authorized
officers as of the day and the year first above written.

                           NATIONAL AUTO FINANCE 1998-1 TRUST,
                           by the Wilmington Trust Company, not in its
                           individual capacity but solely
                           as Owner Trustee on behalf of the Trust,


                                By:
                                   Name:
                                   Title:


                           NATIONAL FINANCIAL AUTO FUNDING TRUST, Seller,
                           by Chase Manhattan Bank Delaware, not in its
                           individual capacity but solely
                           as Trustee of National Financial Auto Funding Trust,


                                By:
                                   Name:
                                   Title:



                          NATIONAL AUTO FINANCE COMPANY, INC.,
                          in its individual capacity and as Servicer,


                                 By:
                                    Name:
                                    Title:


                          HARRIS TRUST AND SAVINGS BANK,
                          not in its individual capacity but solely as Trust
                          Collateral Agent and Backup Servicer


                                 By:
                                     Name:
                                     Title:

<PAGE>
                                   SCHEDULE A


                             SCHEDULE OF RECEIVABLES





<PAGE>


                                   SCHEDULE B


                  REPRESENTATIONS AND WARRANTIES OF THE SELLER

     The Seller hereby  represents and warrants to the Trust Collateral Agent on
behalf of the Noteholders and the Insurer as of the Closing Date with respect to
the Initial  Receivables  transferred to the Trust on the Closing Date and as of
each  Subsequent  Transfer  Date  with  respect  to the  Subsequent  Receivables
transferred to the Trust on such  Subsequent  Transfer Date (unless another date
or  time  period  is  otherwise   specified  or  indicated  in  the   particular
representation or warranty):

          1.  immediately  prior to the Closing Date or the Subsequent  Transfer
     Date, as the case may be, the Seller had a valid and  enforceable  security
     interest in the related Financed  Vehicle,  and such security  interest had
     been duly perfected and was prior to all other present and future liens and
     security interests (except future tax liens and liens that, by statute, may
     be granted priority over previously  perfected security interests) that now
     exist or may hereafter  arise,  and the Seller had the full right to assign
     such security interest to the Trust Collateral Agent;

          2. on and after the Closing Date or the  Subsequent  Transfer Date, as
     the case may be, there shall exist under the Receivable a valid, subsisting
     and enforceable first priority  perfected security interest in the Financed
     Vehicle  securing such  Receivable  (other than, as to the priority of such
     security interest, any statutory lien arising by operation of law after the
     Closing Date or the Subsequent  Transfer Date, as the case may be, which is
     prior to such  interest) and at such time as  enforcement  of such security
     interest is sought there shall exist a valid,  subsisting  and  enforceable
     first  priority  perfected  security  interest in such Financed  Vehicle in
     favor of the Trust Collateral Agent (other than, as to the priority of such
     security interest, any statutory lien arising by operation of law after the
     Closing Date or the Subsequent  Transfer Date, as the case may be, which is
     prior to such interest);

          3. no  Receivable  has been  sold,  assigned  or  pledged to any other
     Person other than an  endorsement to the Servicer for purposes of servicing
     or any such pledge has been released; immediately prior to the transfer and
     assignment  herein  contemplated,  the Seller has good and marketable title
     thereto free and clear of any lien,  encumbrance,  equity,  pledge, charge,
     claim or security interest and is the sole owner thereof and has full right
     to transfer such Receivable to the Trust Collateral  Agent. No Dealer has a
     participation  in, or other right to receive,  proceeds of any  Receivable.
     None of NAFI,  the Master Trust,  Funding Trust II nor the Seller has taken
     any  action to convey any right to any  Person  that  would  result in such
     Person  having a right to payments  received  under the  related  insurance
     policies,  Dealer  Agreements or  Originator  Agreements or to payments due
     under such Receivable;

          4. upon the  transfers  pursuant  to Sections  2.1 and 2.2,  the Trust
     Collateral Agent will have a first priority  ownership or security interest
     in each such Receivable free and clear of any  encumbrance,  lien,  pledge,
     charge,  claim, security interest or rights of others; the purchase of each
     such Receivable by NAFI from a Dealer or Originator was not an extension of
     financing to such Dealer or Originator;
<PAGE>

          5. no such  Receivable  is  delinquent  for more than  thirty  days in
     payment as to any scheduled payment;

          6.  there  is  no  lien  against  any  related  Financed  Vehicle  for
     delinquent taxes;

          7. there is no right of rescission, offset, defense or counterclaim to
     the  obligation  of the  related  Obligor  to pay the unpaid  principal  or
     interest  due under such  Receivable;  the  operation  of the terms of such
     Receivable  or the  exercise of any right  thereunder  will not render such
     Receivable  unenforceable  in whole or in part or  subject  to any right of
     rescission,   offset,  defense  or  counterclaim,  and  no  such  right  of
     rescission, offset, defense or counterclaim has been asserted;

          8. no  Receivable  is  assumable  by another  Person in a manner which
     would release the Obligor  thereon from such  Obligor's  obligations to the
     Seller with respect to such Receivable;

          9.  there are no prior  liens or claims  for work,  labor or  material
     affecting any related Financed Vehicle which are or may become a lien prior
     to or equal with the security interest granted by such Receivable;

          10.  each  such  Receivable,  and  the  sale of the  Financed  Vehicle
     securing such Receivable,  where applicable,  complied,  at the time it was
     made and as of the Closing Date or related  Subsequent  Transfer  Date,  as
     applicable, in all material respects with applicable state and federal laws
     (and  regulations  thereunder),   including,  without  limitation,   usury,
     disclosure and consumer  protection  laws, equal credit  opportunity,  fair
     credit reporting,  truth-in-lending or other similar law, the Federal Trade
     Commission  Act, and applicable  state laws regulating  retail  installment
     sales  contracts and loans in general and motor vehicle retail  installment
     sales  contracts  and  loans  in  particular,  and  the  transfer  of  such
     Receivable to the Trust will not violate any such laws;

          11. each such Receivable is a legal,  valid and binding  obligation of
     the Obligor  thereunder and is  enforceable  in accordance  with its terms,
     except  only as such  enforcement  may be  limited  by laws  affecting  the
     enforcement of creditors' rights generally whether enforcement is sought in
     a proceeding  in equity or at law, and all parties to such  Receivable  had
     full legal capacity to execute such  Receivable  and all documents  related
     thereto and to grant the security interest  purported to be granted thereby
     at the time of execution and grant;

          12. as of the Closing Date or such  Subsequent  Transfer  Date, as the
     case may be,  the terms of each  such  Receivable  have not been  impaired,
     waived,  altered or modified in any respect,  except by written instruments
     that are part of the Receivable Documents,  and no such Receivable has been
     satisfied, subordinated or rescinded;

          13. at the time of origination of each such  Receivable,  the proceeds
     of such Receivable were fully disbursed, there is no requirement for future
     advances  thereunder,  and all fees and  expenses  in  connection  with the
     origination of such Receivable have been paid;

          14. there is no default,  breach,  violation or event of  acceleration
     existing under any such Receivable (except payment delinquencies  permitted
     by paragraph 5 above) and no event which,  with the passage of time or with
     notice or with both, would constitute a default, breach, violation or event
     of acceleration  under any such  Receivable or would  otherwise  affect the
     value or  marketability  of such  contract;  NAFI and the  Seller  have not
     waived any such default, breach, violation or event of acceleration; and as
     of the applicable  Cut-off Date, the related  Financed Vehicle has not been
     repossessed;
<PAGE>

          15. at the  origination  date of each  such  Receivable,  the  related
     Financed  Vehicle was covered by a  comprehensive  and collision  insurance
     policy (a) in an amount at least equal to the lesser of (i) the actual cash
     value of the related  Financed  Vehicle or (ii) the unpaid balance owing of
     such Receivable,  less the related Unearned Finance Charge, (b) naming NAFI
     as a loss  payee and (c)  insuring  against  loss and  damage  due to fire,
     theft,  transportation,  collision  and other  risks  generally  covered by
     comprehensive and collision coverage;  each Receivable requires the Obligor
     to  maintain  physical  loss  and  damage  insurance,  naming  NAFI  as  an
     additional insured party;

          16.  each such  Receivable  was  acquired by NAFI from either a Dealer
     with which it ordinarily  does business or from an Originator;  such Dealer
     or  Originator,  as  applicable,  had full  right to  assign  to NAFI  such
     Receivable and the security  interest in the related  Financed Vehicle (and
     the Dealer that  assigned any such  Receivable to any such  Originator  had
     full right to assign to such  Originator  such  Receivable and the security
     interest in the related Financed  Vehicle) and the Dealer's or Originator's
     assignment  thereof to NAFI is legal, valid and binding (and any assignment
     by an Dealer to any  Originator  is legal,  valid and binding) and NAFI had
     full  right to assign to the  Seller  such  Receivable  and the  respective
     security  interest in the related  Financed  Vehicle and NAFI's  respective
     assignment thereof to the Seller is legal, valid and binding;

          17. each such Receivable contains customary and enforceable provisions
     such as to render the rights and  remedies of the holder  thereof  adequate
     for the realization against the related Financed Vehicle of the benefits of
     the security;

          18. scheduled payments under each such Receivable are due monthly (or,
     in the case of the first payment,  no later than the  forty-fifth day after
     the date of the  Receivable)  in  substantially  equal  amounts to maturity
     (other  than  with  respect  to those  Receivables  designated  as  balloon
     contracts on the related Receivables  Schedule),  and will be sufficient to
     fully  amortize such  Receivable at maturity,  assuming that each scheduled
     payment is made on its Due Date;  such  scheduled  payments are  applicable
     only to payment of principal and interest on such Receivable and not to the
     payment of any insurance  premiums  (although the proceeds of the extension
     of credit on such Receivable may have been used to pay insurance premiums);
     and the original term to maturity of each such Receivable was not more than
     60 months;

          19. the collection practices used with respect to each such Receivable
     have been in all material respects legal, proper,  prudent and customary in
     the automobile  installment  sales  contract or installment  loan servicing
     business;

          20. there is only one original of each such  Receivable,  the Servicer
     or a Sub-Servicer  is currently in possession of the  Receivable  Documents
     for such  Receivable  and  there  are no  custodial  agreements  in  effect
     adversely  affecting  the  rights  of the  Seller  to make  the  deliveries
     required hereunder on the Closing Date or the Subsequent  Transfer Date, as
     the case may be;
<PAGE>

          21. as of the Cut-off Date or Subsequent  Cut-off Date, as applicable,
     no Obligor was the subject of a current bankruptcy proceeding;

          22. with respect to each Due Period, the aggregate of the interest due
     on all the  Receivables  in such Due Period from  scheduled  payments is in
     excess  of the sum of (i) the  Servicing  Fee due and any  fees  due to the
     Trust  Collateral  Agent and the  Insurer,  each with  respect  to such Due
     Period and (ii) the amount of interest payable on the Notes with respect to
     such Due Period,  in each case assuming that each scheduled payment is made
     on its Due Date;

          23. the Receivables  constitute  "chattel paper" within the meaning of
     the  UCC as in  effect  in the  applicable  jurisdiction  and  all  filings
     (including  without  limitation,  UCC filings)  required to be made and all
     actions required to be taken or performed by any Person in any jurisdiction
     to give the Trust Collateral  Agent a first priority  perfected lien on, or
     ownership  interest in, the  Receivables  and the proceeds  thereof and the
     remaining Trust Property have been made, taken or performed;

          24.  the  information  regarding  such  Receivables  set  forth in the
     applicable  Receivables  Schedule  is  true  and  correct  in all  material
     respects at the applicable  Cut-off Date and the Closing Date or Subsequent
     Closing Date, as applicable;  each  Receivable was originated in the United
     States of America and at the time of origination,  materially  conformed to
     all requirements of the NAFI  underwriting  policies and guidelines then in
     effect;  and no Obligor is the United States of America or any state or any
     agency, department, subdivision or instrumentality thereof;

          25. by the Closing Date and prior to each Subsequent Transfer Date, as
     applicable,  NAFI will have caused the portions of NAFI's servicing records
     relating to the Receivables to be clearly and unambiguously  marked to show
     that the Receivables constitute part of the Trust Property and are owned by
     the Trust in accordance with the terms of this Agreement;

          26. the computer  tape or listing made  available by NAFI to the Trust
     Collateral  Agent on the Closing Date and on each Subsequent  Transfer Date
     was complete and accurate as of the applicable Cut-off Date, and includes a
     description  of the same  Receivables  that are described in the applicable
     Receivables Schedule;

          27. no Receivable was originated in, or is subject to the laws of, any
     jurisdiction,  the laws of which would make unlawful,  void or voidable the
     sale,  transfer and assignment of such  Receivable  under this Agreement or
     the Subsequent Transfer Agreement, as applicable,  or pursuant to transfers
     of the Notes.  The  Seller  has not  entered  into any  agreement  with any
     account  debtor that  prohibits,  restricts or conditions the assignment of
     any portion of the Receivables;

          28. no  selection  procedures  adverse  to the  Noteholders  or to the
     Insurer have been  utilized in  selecting  such  Receivable  from all other
     similar Receivables originated by NAFI;
<PAGE>

          29. as of the Initial Cut-off Date, the APR of the Initial Receivables
     was  approximately  19.19% and the  weighted  average  remaining  scheduled
     maturity on the Initial  Receivables was approximately 51.82 months and the
     percentage of the aggregate  outstanding balance of the Initial Receivables
     relating to the financing of used Financed  Vehicles was 77.38%.  The final
     scheduled  payment date on the Initial  Receivable with the latest maturity
     is December 15, 2002. Each Receivable  amortizes based on a Simple Interest
     Method or Actuarial Method; and

          30. no Receivable provides for a prepayment penalty.



<PAGE>
                                  EXHIBIT 5.10

                        FORM OF STATEMENT TO NOTEHOLDERS



<PAGE>

                                  EXHIBIT 2.2A


          OFFICER'S CERTIFICATE OF NATIONAL AUTO FINANCE COMPANY, INC.



     The undersigned, a duly authorized officer of National Auto
Finance Company, Inc. (the "Company"), hereby certifies that:

     1.  Capitalized  terms used but not defined  herein have the  meanings  set
forth in the Sale and Servicing Agreement (the "Sale and Servicing  Agreement"),
dated as of December [__],  1997,  among  National  Financial Auto Funding Trust
(the "Seller"), the Company, as the Servicer, National Auto Finance 1998-1 Trust
and Harris Trust and Savings Bank, not in its individual  capacity but solely as
Trust Collateral Agent and Backup Servicer.  This certificate is being delivered
pursuant to Section 2.2(b)(ix)(A) of the Sale and Servicing Agreement.

     2. The sale and transfer of the  Subsequent  Receivables  by the Company to
the  Seller  on the  date  hereof  pursuant  to the  Purchase  and  Contribution
Agreement and the related  Conveyance  (which Conveyance is dated as of the date
hereof) was made in good faith for legitimate business purposes and was not made
with  intent to hinder,  delay or defraud  any Person to which the  Company  has
been, is or will become, on or after the date hereof, indebted.

     3. The Company did not receive less than a reasonably  equivalent  value in
exchange for the sale of the Subsequent Receivables by the Company to the Seller
on the date hereof pursuant to the Purchase and  Contribution  Agreement and the
related Conveyance.

     4. The  Company  is not  insolvent  on the date  hereof and will not become
insolvent as a result of the sale of  Subsequent  Receivables  by the Company to
the  Seller  on the  date  hereof  pursuant  to the  Purchase  and  Contribution
Agreement and the related Conveyance.

     5. The  Company is not  engaged in a business  or  transaction,  and is not
about to engage in a business or transaction,  for which any property  remaining
with the Company after such  business or  transaction  would be an  unreasonably
small capital.

     6. The Company has not  incurred,  and does not believe that it will incur,
debts that are beyond the Company's ability to pay as such debts mature.

     7. No Servicer Termination Event has occurred and is continuing.

     IN WITNESS WHEREOF, the Company has caused this Officer's Certificate to be
duly executed this ____ day of ________, 199_.

<PAGE>

                              NATIONAL AUTO FINANCE COMPANY, INC.,
                                 in its individual capacity and as Servicer,


                              By:_
                                 Name:
                                 Title:


<PAGE>
                                  EXHIBIT 2.2B


         OFFICER'S CERTIFICATE OF NATIONAL FINANCIAL AUTO FUNDING TRUST



     The  undersigned,  a duly  authorized  officer of National  Financial  Auto
Funding Trust (the "Seller"), hereby certifies that:

     1.  Capitalized  terms used but not defined  herein have the  meanings  set
forth in the Sale and Servicing Agreement (the "Sale and Servicing  Agreement"),
dated as of  December  [__],  1997,  among the  Seller,  National  Auto  Finance
Company,  Inc. (the  "Company"),  as the Servicer,  National Auto Finance 1998-1
Trust  (the  "1998-1  Trust")  and Harris  Trust and  Savings  Bank,  not in its
individual  capacity but solely as Trust  Collateral  Agent and Backup Servicer.
This  certificate is being delivered  pursuant to Section  2.2(b)(ix)(B)  of the
Sale and Servicing Agreement.

     2. The sale and transfer of the Subsequent Receivables by the Seller to the
1998-1 Trust on the date hereof pursuant to the Sale and Servicing Agreement and
the related Subsequent  Transfer Agreement (which Subsequent  Transfer Agreement
is dated as of the date hereof) was made in good faith for  legitimate  business
purposes and was not made with intent to hinder,  delay or defraud any Person to
which  the  Funding  Trust  has been,  is or will  become,  on or after the date
hereof, indebted.

     3. The Funding  Trust did not  receive  less than a  reasonably  equivalent
value in  exchange  for the sale of the  Subsequent  Receivables  by the Funding
Trust to the 1998-1 Trust on the date hereof  pursuant to the Sale and Servicing
Agreement and the related Subsequent Transfer Agreement.

     4. The  Funding  Trust is not  insolvent  on the date  hereof  and will not
become  insolvent  as a result  of the  sale of  Subsequent  Receivables  by the
Funding  Trust to the 1998-1  Trust on the date hereof  pursuant to the Sale and
Servicing Agreement and the related Subsequent Transfer Agreement..

     5. The Funding  Trust is not engaged in a business or  transaction,  and is
not  about to engage  in a  business  or  transaction,  for  which any  property
remaining with the Funding Trust after such business or transaction  would be an
unreasonably small capital.

     6. The Funding  Trust has not  incurred,  and does not believe that it will
incur,  debts that are beyond the Funding  Trust's  ability to pay as such debts
mature.

     7. No Servicer Termination Event has occurred and is continuing.

     IN WITNESS WHEREOF, the Funding Trust has caused this Officer's Certificate
to be duly executed this ____ day of ________, 199_.

<PAGE>
                     NATIONAL FINANCIAL AUTO FUNDING TRUST,
                     by Chase Manhattan Bank Delaware, not in its individual
                     capacity but solely as Trustee of National Financial Auto
                     Funding Trust,




                     By:
                        Name:
                        Title:


<PAGE>
                                   EXHIBIT A


                          SUBSEQUENT TRANSFER AGREEMENT

     TRANSFER No. ___ OF SUBSEQUENT Receivables pursuant to a Sale and Servicing
Agreement dated as of July __, 1997 (the "Sale and Servicing Agreement"),  among
NATIONAL AUTO FINANCE  1998-1 TRUST, a Delaware  business trust (the  "Issuer"),
NATIONAL FINANCIAL AUTO FUNDING TRUST, a Delaware business trust (the "Seller"),
NATIONAL AUTO FINANCE COMPANY,  INC., a Delaware  corporation (the  "Servicer"),
and HARRIS TRUST AND SAVINGS BANK, an Illinois banking  corporation,  not in its
individual  capacity,  but solely as Trust  Collateral Agent and Backup Servicer
(the "Trust Collateral Agent").


                              W I T N E S S E T H:

     WHEREAS pursuant to the Sale and Servicing Agreement,  the Seller wishes to
convey the Subsequent Receivables to the Issuer; and

     WHEREAS,  the Issuer is willing to accept  such  conveyance  subject to the
terms and conditions hereof.

     NOW,  THEREFORE,  the  Issuer,  the  Seller,  the  Servicer  and the  Trust
Collateral Agent hereby agree as follows:

     1.  Defined  Terms.  Capitalized  terms used herein shall have the meanings
ascribed to them in the Sale and Servicing  Agreement unless  otherwise  defined
herein.

     "Subsequent  Cut-off  Date"  shall  mean,  with  respect to the  Subsequent
Receivables conveyed hereby, _______________, 199_.

     "Subsequent  Transfer  Date" shall  mean.  with  respect to the  Subsequent
Receivables conveyed hereby, _____________, 199_.

     2.  Receivables  Schedule.  Annexed hereto is a supplement to Schedule A to
the Sale and Servicing  Agreement  listing the  Receivables  that constitute the
Subsequent  Receivables  to be  conveyed  pursuant  to  this  Agreement  on  the
Subsequent  Transfer Date. Such Receivables  Schedule is marked as Schedule 1 to
this Subsequent Transfer Agreement and is hereby incorporated in and made a part
of this Subsequent Transfer Agreement and the Sale and Servicing Agreement.

     3. Conveyance of Subsequent  Receivables.  In consideration of the Issuer's
delivery  to or upon the order of the Seller of  $____________,  the Seller does
hereby sell,  transfer,  assign,  set over and  otherwise  convey to the Issuer,
without  recourse  (except  as  expressly  provided  in the Sale  and  Servicing
Agreement)  and does hereby grant to the Trust  Collateral  Agent,  in trust for
exclusive use and benefit of all present and future Noteholders and the Insurer,
all right, title and interest of the Seller in and to the following, whether now
owned or hereafter acquired:
<PAGE>
     the Subsequent  Receivables and all moneys received  thereon,  on and after
the related  Subsequent  Cut-off  Date  (including  amounts due on or before the
Subsequent  Cut-off  Date but  received by NAFI,  the Seller or the Issuer on or
after the Subsequent Cut-off Date);

     (b) any  proceeds  and the right to receive  proceeds  with  respect to the
Subsequent  Receivables  from  claim and the right to  receive  proceeds  on any
physical damage,  credit life or disability insurance policies or other policies
covering Financed Vehicles or Obligors, including rebating of insurance premiums
relating  to the  Receivables,  and any  proceeds  from the  liquidation  of the
Subsequent  Receivables;  (c) all  rights  of the  Seller  against  the  Dealers
pursuant to Dealer  Agreements  or against  Originators  pursuant to  Originator
Agreements;  (d) the related  Receivables  Files and any and all other documents
that NAFI keeps on file in accordance with its customary  procedures relating to
the Receivables,  the Obligors or the Financed Vehicles; (e) property (including
the right to receive future Liquidation  Proceeds) that secures a Receivable and
that has been acquired by or on behalf of the Trust  pursuant to  liquidation of
such  Receivable;  (f) all  funds  on  deposit  from  time to time in the  Trust
Accounts  (less all  investments  and proceeds  thereof),  and all rights of the
Issuer therein;  (g) all of the Seller's right, title and interest in its rights
and  benefits,  but  none  of its  obligations  or  burdens,  under  each of the
Subsequent   Purchase   Agreements,   including   the   delivery   requirements,
representations  and warranties and the cure and repurchase  obligations of NAFI
under  each of the  Subsequent  Purchase  Agreements,  on or after  the  related
Subsequent  Cut-off Date;  and (h) the proceeds of any and all of the foregoing.
4.  Representations  and Warranties of the Seller.  The Seller hereby represents
and  warrants  to the  Issuer  as of the  date of this  Agreement  and as of the
Subsequent Transfer Date that:

     (a) Schedule of  Representations.  The  representations  and warranties set
forth on the Schedule of Representations  attached hereto as Schedule B are true
and correct.

     (b) Organization and Good Standing. The Seller is a Delaware business trust
duly  organized,  validly  existing,  and in good standing under the laws of the
State of Delaware, with power and authority to own its properties and to conduct
its  business  as such  properties  are  currently  owned and such  business  is
currently  conducted,  and  had at all  relevant  times,  and  now  has,  power,
authority and legal right to acquire, own and sell the Receivables and the Other
Conveyed Property  transferred to the Trust. 
<PAGE>
     (c) Due Qualification. The Seller has obtained all necessary licenses and
approvals in all jurisdictions where the failure to do so would materially and
adversely affect Seller's ability to transfer the Receivables and the Other
Conveyed Property to the Trust pursuant to this Agreement, or the validity or
enforceability of the Receivables and the Other Conveyed Property or to perform
Seller's obligations hereunder and under the Transaction Documents to which the
Seller is a party.

     (d) Power and Authority. The Seller has the power and authority to execute
and deliver this Agreement and its Transaction Documents and to carry out its
terms and their terms, respectively; the Seller has full power and authority to
sell and assign the Receivables and the Other Conveyed Property to be sold and
assigned to and deposited with the Trust by it and has duly authorized such sale
and assignment to the Trust; and the execution, delivery and performance of this
Agreement and the Transaction Documents to which the Seller is a party have been
duly authorized by the Seller.

     (e) Valid Sale, Binding Obligations. This Agreement effects a valid sale,
transfer and assignment of the Receivables and the Other Conveyed Property,
enforceable against the Seller and creditors of and purchasers from the Seller;
and this Agreement and the Transaction Documents to which the Seller is a party,
when duly executed and delivered, shall constitute legal, valid and binding
obligations of the Seller enforceable in accordance with their respective terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of creditors'
rights generally and by equitable limitations on the availability of specific
remedies, regardless of whether such enforceability is considered in a
proceeding in equity or at law.

     (f) No Violation. The consummation of the transactions contemplated by this
Agreement and the Transaction Documents and the fulfillment of the terms of this
Agreement and the Transaction Documents shall not conflict with, result in any
breach of any of the terms and provisions of or constitute (with or without
notice, lapse of time or both) a default under the certificate of incorporation
or by-laws of the Seller, or any indenture, agreement, mortgage, deed of trust
or other instrument to which the Seller is a party or by which it is bound, or
result in the creation or imposition of any Lien upon any of its properties
pursuant to the terms of any such indenture, agreement, mortgage, deed of trust
or other instrument, other than this Agreement, or violate any law, order, rule
or regulation applicable to the Seller of any court or of any federal or state
regulatory body, administrative agency or other governmental instrumentality
having jurisdiction over the Seller or any of its properties.

     (g) No Proceedings. There are no proceedings or investigations pending or,
to the Seller's knowledge, threatened against the Seller, before any court,
regulatory body, administrative agency or other tribunal or governmental
instrumentality having jurisdiction over the Seller or its properties (A)
asserting the invalidity of this Agreement or any of the Transaction Documents,
(B) seeking to prevent the consummation of any of the transactions contemplated
by this Agreement or any of the Transaction Documents, (C) seeking any
determination or ruling that might materially and adversely affect the
performance by the Seller of its obligations under, or the validity or
enforceability of, this Agreement or any of the Transaction Documents, or (D)
seeking to adversely affect the federal income tax or other federal, state or
local tax attributes of the Notes.

<PAGE>

     (h) Approvals. All approvals, authorizations, consents, order or other
actions of any person, corporation or other organization, or of any court,
governmental agency or body or official, required in connection with the
execution and delivery by the Seller of this Agreement and the consummation of
the transactions contemplated hereby have been or will be taken or obtained on
or prior to the Closing Date.

     (i) No Consents. The Seller is not required to obtain the consent of any
other party or any consent, license, approval or authorization, or registration
or declaration with, any governmental authority, bureau or agency in connection
with the execution, delivery, performance, validity or enforceability of this
Agreement which has not already been obtained.

     (j) Chief Executive Office. The chief executive office of the Seller is at
One Park Place, 621 N.W. 53rd Street, Boca Raton, Florida, 33487.

     (k) Principal Balance. The aggregate Principal Balance of the Receivables
listed on the supplement to Schedule A annexed hereto and conveyed to the Issuer
pursuant to this Agreement as of the Subsequent Cut-off Date is $____________.

     (l) Contract Files. The Seller does hereby deliver to the Custodian the
original motor vehicle retail installment sale contracts and Receivables Files
for each Receivable identified in the Receivables Schedule.

     5. Receivable File. The Seller does hereby deliver to the Custodian the
original motor vehicle retail installment sale contracts and Receivables Files
for each Receivable identified in the Receivables Schedule.

     6.  Conditions  Precedent.  The  obligation  of the Issuer to  acquire  the
Receivables  hereunder  is  subject  to the  satisfaction,  on or  prior  to the
Subsequent Transfer Date, of the following conditions precedent:

     (a)  Representations  and  Warranties.  Each  of  the  representations  and
warranties  made by the Seller in Section 4 of this Agreement and in Section 8.1
of the Sale and Servicing  Agreement shall be true and correct as of the date of
this Agreement and as of the Subsequent Transfer Date.

     (b) Sale and Servicing  Agreement  Conditions.  Each of the  conditions set
forth in  Section  2.2(b) to the Sale and  Servicing  Agreement  shall have been
satisfied.  

     (c) Additional Information. The Seller shall have delivered to the Issuer
such information as was reasonably requested by the Issuer to satisfy itself as
to (i) the accuracy of the representations and warranties set forth in Section 4
of this Agreement and in Section 8.1 of the Sale and Servicing Agreement and
(ii) the satisfaction of the conditions set forth in this Section 6.
<PAGE>

     7. Ratification of Agreement. As supplemented by this Agreement, the Sale
and Servicing Agreement is in all respects ratified and confirmed and the Sale
and Servicing Agreement as so supplemented by this Agreement shall be read,
taken and construed as one and the same instrument.

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

     9. GOVERNING LAW. THIS AGREEMENT  SHALL BE CONSTRUED IN ACCORDANCE WITH THE
LAWS  OF THE  STATE  OF NEW  YORK,  WITHOUT  REFERENCE  TO ITS  CONFLICT  OF LAW
PROVISIONS,  AND THE OBLIGATIONS,  RIGHTS AND REMEDIES OF THE PARTIES  HEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.

     10. Third-Party Beneficiaries. This Agreement shall inure to the benefit of
and be binding  upon the  parties  hereto  and their  respective  successor  and
permitted  assigns.  Except as  otherwise  provided in this Section 10, no other
person  shall  have any  right or  obligation  hereunder.  The  Insurer  and its
successors  and assigns shall be a third-party  beneficiary to the provisions of
this  Agreement,  and shall be entitled to rely upon and  directly  enforce such
provisions of this  Agreement so long as no Insurer  Default shall have occurred
and be  continuing.  Except  as  expressly  stated  otherwise  herein  or in the
Transaction Documents,  any right of the Insurer to direct, appoint, consent to,
approve of, or take any action under this Agreement,  shall be a right exercised
by the Insurer to direct,  appoint,  consent to,  approve of, or take any action
under this Agreement,  shall be a right exercised by the Insurer in its sole and
absolute discretion. The Insurer may disclaim any of its rights and powers under
this  Agreement  (but not its  duties and  obligations  under the  Policy)  upon
delivery of a written notice to the Trustee.



<PAGE>
     IN WITNESS  WHEREOF,  the Issuer,  the Seller and the Servicer  have caused
this  Agreement to be duly  executed  and  delivered  by their  respective  duly
authorized officers as of day and the year first above written.

                       NATIONAL AUTO FINANCE 1998-1 TRUST


                          by Wilmington  Trust Company,  not in its individual 
                          capacity but solely as Owner Trustee on behalf of the
                          Trust,



                          by
                               Title:


                       NATIONAL FINANCIAL AUTO FUNDING TRUST, Seller,
                       by Chase Manhattan Bank Delaware, not in its individual
                       capacity, but solely as Trustee of National Financial 
                       Auto Funding Trust,



                           by
                                     Title:


                       NATIONAL AUTO FINANCE COMPANY, INC., Servicer,




                           by
                                     Title:


Acknowledged and Accepted:

HARRIS  TRUST AND SAVINGS  BANK,
not in its  individual  capacity
but solely as Trust Collateral
Agent and Backup Servicer



by
       Title:



<PAGE>




                                    EXHIBIT B

                         FORM OF SERVICER'S CERTIFICATE