SALE AND SERVICING
                                  AGREEMENT
                                    among
                     NATIONAL AUTO FINANCE 1997-1 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 June 29, 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................................................23
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.......................................24
SECTION 1.8.  Calculations as to Principal and
                 Interest in Respect of Receivables.........................24

                                  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.........................29

                                 ARTICLE III

                               The Receivables

SECTION 3.1.  Representations and Warranties of Seller......................31
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


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SECTION 4.4.  No Contractual Relationship between a
               Sub-Servicer and Trust Collateral Agent
               or Noteholders...............................................37
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......................................39
SECTION 4.8.  Realization upon Defaulted Receivables........................39
SECTION 4.9.  Total Servicing Fee; Payment of Certain Expenses
               by Servicer..................................................40
SECTION 4.10. [Reserved]....................................................40
SECTION 4.11. Reports.......................................................40
SECTION 4.12. Annual Statement as to Compliance, Notice of
               Servicer Termination Event...................................41
SECTION 4.13. Annual Independent Accountants' Report........................41
SECTION 4.14. Access to Certain Documentation and Information
               Regarding Receivables........................................42
SECTION 4.15. Monthly Tape..................................................42
SECTION 4.16. Retention and Termination of Servicer.........................43
SECTION 4.17. Custodial Arrangement.........................................42



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                                  ARTICLE V

           Trust Accounts; Distributions; Statements to Noteholders

SECTION 5.1.  Establishment of Trust Accounts...............................43
SECTION 5.2.  Pre-Funding Period Reserve Account............................47
SECTION 5.3.  Certain Reimbursements to the Servicer........................48
SECTION 5.4.  Application of Collections....................................48
SECTION 5.5.  Withdrawals from Series 1997-1 Spread Account.................48
SECTION 5.6.  Additional Deposits...........................................49
SECTION 5.7.  Distributions.................................................49
SECTION 5.8.  Note Distribution Account.....................................52
SECTION 5.9.  Pre-Funding Account...........................................53
SECTION 5.10.  Statements to Noteholders....................................53
SECTION 5.11.  Optional Deposits by the Insurer.............................54

                                  ARTICLE VI

                               The Note Policy

SECTION 6.1.  Claims Under Note Policy......................................54
SECTION 6.2.  Preference Claims.............................................55
SECTION 6.3.  Surrender of Policy...........................................56
SECTION 6.4.  Spread Account................................................56


                                 ARTICLE VII

                                   RESERVED

                                 ARTICLE VIII

                                  The Seller

SECTION 8.1.  Representations, Warranties and Covenants of
                 the Seller.................................................56
SECTION 8.2.  Corporate Existence...........................................59
SECTION 8.3.  Liability of Seller; Indemnities..............................60
SECTION 8.4.  Merger or Consolidation of, or Assumption of the
                 Obligations of, Seller.....................................60
SECTION 8.5.  Limitation on Liability of Seller and Others..................61
SECTION 8.6.  Seller May Own Notes..........................................61


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                                  ARTICLE IX

                                 The Servicer

SECTION 9.1.  Representations, Warranties and Covenants of the
               Servicer.....................................................61
SECTION 9.2.  Liability of Servicer; Indemnities............................63
SECTION 9.3.  Merger or Consolidation of, or Assumption of the
               Obligations of the Servicer or the Trust Collateral
               Agent........................................................65
SECTION 9.4.  Limitation on Liability of Servicer, Trust Collateral
               Agent and Others.............................................66
SECTION 9.5.  Delegation of Duties..........................................68
SECTION 9.6.  Servicer and Trust Collateral Agent Not to Resign.............68

                                  ARTICLE X

                                   Default

SECTION 10.1.  Servicer Termination Event...................................69
SECTION 10.2.  Consequences of a Servicer Termination Event.................70
SECTION 10.3.  Additional Consequences of a Servicer Termination
                Event.......................................................72
SECTION 10.4.  Appointment of Successor.....................................72
SECTION 10.5.  [RESERVED]...................................................72
SECTION 10.6.  Notification to Noteholders and Rating Agencies..............73
SECTION 10.7.  Waiver of Past Defaults......................................74
SECTION 10.8.  Termination of Trust Collateral Agent........................74
SECTION 10.9.  Successor to Servicer........................................75

                                  ARTICLE XI

                                 Termination

SECTION 11.1.  Optional Purchase of All Receivables.........................75

                                 ARTICLE XII

                    Administrative Duties of the Servicer

SECTION 12.1.  Administrative Duties........................................76
SECTION 12.2.  Records......................................................78


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SECTION 12.3.  Additional Information to be Furnished to the Issuer.........79

                                 ARTICLE XIII

                           Miscellaneous Provisions

SECTION 13.1.  Amendment....................................................79
SECTION 13.2.  Protection of Title to Trust.................................80
SECTION 13.3.  Notices......................................................82
SECTION 13.4.  Assignment...................................................83
SECTION 13.5.  Limitations on Rights of Others..............................83
SECTION 13.6.  Severability.................................................84
SECTION 13.7.  Separate Counterparts........................................84
SECTION 13.8.  Headings.....................................................84
SECTION 13.9.  Governing Law................................................84
SECTION 13.10.  Assignment to Trustee.......................................84
SECTION 13.11.  Nonpetition Covenants.......................................84
SECTION 13.12.  Limitation of Liability of Owner Trustee and
                 Trustee....................................................85
SECTION 13.13.  Independence of the Servicer................................85
SECTION 13.14.  No Joint Venture............................................86
SECTION 13.14.  Insurer as Controlling Party................................84




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      SALE AND SERVICING  AGREEMENT  dated as of June 29, 1997,  among  NATIONAL
AUTO FINANCE 1997-1 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;

      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 4.14.

            "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.



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            "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
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 June 29,
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


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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 Distribution Date,
the  arithmetic  average of the Default  Rates for each of the three Due Periods
immediately preceding the Due Period in which such Distribution Date occurs.

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

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


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

            "Closing Date" means July 23, 1997.

            "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.

            "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 Section 5.10.

            "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 the Custodial  Agreement,  dated as of
July 23, 1997,  between NAFI and OFSA, as assigned to the Trust Collateral Agent
pursuant to Section 4.17 hereof.

            "Custodian"  means OFSA and any other Person named from time to time
as custodian in any Custodian Agreement acting as agent for the Trust Collateral
Agent, which


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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).

            "Custodian  Agreement"  means the Custodial  Agreement and any other
Custodian  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  Custodian  Agreement and any  amendments,  supplements  or  modifications
thereto shall be acceptable to the  Controlling  Party (the Custodian  Agreement
which is effective on the Closing Date is acceptable to the Controlling Party).

            "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.

            "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


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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, with respect to a  certificated  security (as defined in Section 8-102
     of the UCC) transfer thereof (i) by delivery of such certificated  security
     endorsed to, or  registered in the name of, the Trust  Collateral  Agent or
     its nominee or custodian  or endorsed in blank to a financial  intermediary
     (as defined in Section  8-313 of the UCC) and the making by such  financial
     intermediary  of  entries  on  its  books  and  records   identifying  such
     certificated  securities as belonging to the Trust  Collateral Agent or its
     nominee or custodian and the sending by such  financial  intermediary  of a
     confirmation  of the  purchase of such  certificated  security by the Trust
     Collateral  Agent or its nominee or custodian,  or (ii) by delivery thereof
     to a "clearing corporation" (as defined in Section 8-102(3) of the UCC) and
     the making by such clearing corporation of appropriate entries on its books
     reducing  the  appropriate   securities   account  of  the  transferor  and
     increasing the appropriate  securities account of a financial  intermediary
     by the amount of such  certificated  security,  the  identification  by the
     clearing  corporation  of the  certificated  securities  for the  sole  and
     exclusive  account of the financial  intermediary,  the maintenance of such
     certificated  securities by such clearing corporation or a "custodian bank"
     (as  defined  in  Section  8-102(4)  of the UCC) or the  nominee  of either
     subject to the clearing  corporation's  exclusive control, the sending of a
     confirmation  by the  financial  intermediary  of the purchase by the Trust
     Collateral


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     Agent or its nominee or custodian of such securities and the making by such
     financial intermediary of entries on its books and records identifying such
     certificated  securities as belonging to the Trust  Collateral Agent or its
     nominee or custodian (all of the foregoing,  "Physical Property"),  and, in
     any event,  any such Physical  Property in registered  form shall be in the
     name of the Trust  Collateral  Agent or its nominee or custodian;  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;

          (b) 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 financial  intermediary
     which is also a "depository" pursuant to applicable Federal regulations and
     issuance  by such  financial  intermediary  of a  deposit  advice  or other
     written   confirmation  of  such  book-entry   registration  to  the  Trust
     Collateral  Agent or its nominee or  custodian of the purchase by the Trust
     Collateral Agent or its nominee or custodian of such book-entry securities;
     the  making by such  financial  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 or its nominee or custodian and indicating that
     such custodian  holds such Trust Account  Property  solely as agent for the
     Trust Collateral Agent or its nominee or custodian;  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

          (c) 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 (b) above,  registration  on the books and  records of the issuer
     thereof  in the  name  of the  financial  intermediary,  the  sending  of a
     confirmation  by the  financial  intermediary  of the purchase by the Trust
     Collateral  Agent  or its  nominee  or  custodian  of  such  uncertificated
     security, the making by such financial intermediary of entries on its books
     and records  identifying such  uncertificated  certificates as belonging to
     the Trust Collateral Agent or its nominee or custodian.

          (d) 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


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     records of its nominees,  indicating that such securities are held in trust
     pursuant to and as provided in this Agreement.

            "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  August 21,
1997.

            "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 July  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 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


                                     8



<PAGE>








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 direct 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


                                     9



<PAGE>








contractual  commitment  to invest  therein,  a rating from Standard & Poor's of
A-1+ and from Moody's of P-1;

            (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 (x) OFSA or (y) any Person  which at
the time of its  appointment  as  Sub-Servicer,  (i) is servicing a portfolio of
motor vehicle retail installment


                                     10



<PAGE>








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.

            "Final  Scheduled  Distribution  Date" means the  Distribution  Date
occurring in November, 2003.

            "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 foregin  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 June 29, 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 June 29, 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 July 23, 1997, among the Insurer, the Trust, the Seller and NAFI, as
such agreement may


                                     11



<PAGE>








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:

            (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


                                     12



<PAGE>








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
Distribution  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 6.35% 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 1997-1 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.

            "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% 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.



                                     13



<PAGE>








            "Liquidation   Proceeds"   means,   with  respect  to  a  Liquidated
Receivable,  all amounts  realized with respect to such  Receivable  (other than
amounts  withdrawn  from the Series 1997-1 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.

            "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.

            "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  Permitted
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;


                                     14



<PAGE>








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.

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



                                     15



<PAGE>








            "Note Policy" means the financial  guaranty  insurance policy number
50609-N issued by the Insurer to the Trust  Collateral  Agent,  as agent for the
Trustee, for the benefit of the Noteholders.

            "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
Policy,  including any endorsements thereto) 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'  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


                                     16



<PAGE>








Distribution  Date (before  reduction  of the Note Balance by any  distributions
made on such Distribution  Date) and (ii) 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 a Co-Trustee
of the Seller or Funding  Trust II, as the case may be, or the  Chairman  of the
Board,  President,   Executive  Vice  President,  Senior  Vice  President,  Vice
President, or Assistant Vice President of the Custodian, NAFI, or by a Servicing
Official,  as the case may be, and delivered to the Trust  Collateral  Agent, as
required by this Agreement.

            "OFSA"  means Omni  Financial  Services of America,  Inc., a Florida
corporation,  or any substitute Sub-Servicer  performing  substantially the same
services  on behalf of the  Servicer  as OFSA  performs  pursuant to the Amended
Restated Servicing Agreement, dated as of December 8, 1994, between the Servicer
and World Omni  Financial  Corp.  ("WOFCO"),  as such  agreement may be amended,
supplemented  or otherwise  modified  from time to time in  accordance  with the
terms thereof and the terms of this Agreement, and the Assignment and Assumption
Agreement  dated as of October 23, 1995 between WOFCO and OFSA pursuant to which
WOFCO assigned its subservicing duties to OFSA.



                                     17



<PAGE>








            "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 (x) of this Agreement.

            "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).



                                     18



<PAGE>








            "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 $6,689,091.18

            "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 October 30, 1997.

            "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
$86,824.40 deposited on the Closing Date.

            "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 Retransfer 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


                                     19



<PAGE>








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 Retransfer 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
Receivables  that were  required to be purchased  pursuant to Sections 2.2, 2.5,
3.2 and 4.1 but were not purchased,  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 July 23, 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 3.2 or 4.1, 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  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
4.7 or  repurchased  by the Seller or NAFI  pursuant  to Section  3.2 or Section
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


                                     20



<PAGE>








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 Receivable  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 National
Financial,  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.

            "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 and attached thereto as Schedule 1, 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.


                                     21



<PAGE>









            "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.

            "Retransfer 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 Section  2.2,  Section  2.5,
Section 3.2 or Section 4.1 and has not so deposited such amount on the Reporting
Date on which it is required to repurchase such


                                     22



<PAGE>








Receivable following receipt of notice from the Trust Collateral Agent that such
Receivable is required to be retransferred.

            "Retransfer  Receivable"  means any Receivable  retransferred to the
Seller or the Servicer pursuant to Sections 2.2, 2.5, 3.2 or 4.1 hereof.

            "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  4.2(b) and (c), 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 1997-1 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
10.3.

            "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.



                                     23



<PAGE>








            "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  4.12,  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 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 July 23, 1997 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  Schedule A 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.



                                     24



<PAGE>








            "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.  Initially,  the  Sub-Servicer  will be
OFSA.

            "Sub-Servicer  Account"  means the account  maintained  by OFSA with
Mellon  Financial  Services to which Obligors have been or will be instructed to
remit payments in respect of the Receivables.

            "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  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.


                                     25



<PAGE>









            "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 July 21,
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 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
1997-1 Spread Account to the Trust  Collateral Agent and the Insurer pursuant to
the Spread Account  Agreement,  the Series 1997-1 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.



                                     26



<PAGE>








            "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.

      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


                                     27



<PAGE>








"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.



                                     28



<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  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 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) the 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.


                                     29



<PAGE>








      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. It is the
intention of the Seller that the transfer and  assignment  contemplated  by this
Agreement  shall  constitute a sale of the  Receivables and other Trust Property
from the Seller to the Issuer 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. In the event that,  notwithstanding  the intent
of the Seller, the transfer and assignment contemplated hereby is held not to be
a sale,  this Agreement shall  constitute a grant of a security  interest in the
property  referred to in this Section 2.1 for the benefit of the Noteholders and
the Insurer.

      The Seller  intends that the transfer and assignment of Receivables by the
Seller to the Trust  constitute  an  absolute  transfer  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);  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 in the Receivables and the remainder of the Trust Property. By
the  transfer,  assignment  and set-over  contemplated  by this Section 2.1, 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.  Within two Business Days of 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


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<PAGE>








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.

      (a)  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:

            (i) the Subsequent  Receivables  listed on Schedule A 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;


                                     31



<PAGE>









            (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) 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

            (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:

            (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 the Subsequent Receivables;

            (ii) the Seller shall have  delivered the  Receivables  Schedule for
      the  Subsequent  Receivables  to be  transferred  to  the  Trust  on  such
      Subsequent  Transfer  Date 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 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   supplements   to  Schedule  A,  listing  the   Subsequent
      Receivables and a copy thereof to the Insurer;

            (iv) the Seller shall,  to the extent  required by Section 4.2, have
      deposited  or  caused  to be  deposited  in  the  Collection  Account  all
      collections in respect of the Subsequent Receivables;


                                     32



<PAGE>









            (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 any transfer of  Subsequent  Receivables
      on a 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 October 30, 2002;

            (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 the
      Subsequent  Receivables to be transferred on such Subsequent Transfer Date
      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, including, without
      limitation, its obligations set forth in Section 2.4(b);

            (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,
      the Insurer 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
      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  the  Subsequent  Receivables  being
      transferred  and assigned to the Trust on such  Subsequent  Transfer Date;
      and



                                     33



<PAGE>








            (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 4.7.

      (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 in the Trust  Property to secure the  repayment of the Notes.
The 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  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


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<PAGE>








rights  of the  Trust  Collateral  Agent  under  Article  III  of the  Indenture
following discharge of the Indenture shall thereupon vest in Certificateholders.

      (d) The  Trust  Collateral  Agent  shall,  at such  time as  there  are no
Securities  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. (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.  Promptly  after 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. NAFI
hereby warrants, represents and covenants to and with the Trust Collateral Agent
and the Insurer that  recordation of the name of NAFI as lienholder in the Title
Documents  respecting  any  Financed  Vehicle  as well as such  lien  itself  is
maintained  by NAFI as agent for the Trust  Collateral  Agent for the benefit of
the Trust and NAFI 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.

      (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.


                                     35



<PAGE>









      SECTION  2.5.  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
OFSA makes no  representation  as to the contents of the 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 following representations and warranties 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.



                                     36



<PAGE>








      (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) The  representations  and  warranties  set forth in this Section 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 related  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
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 accept a  repurchase  of any
Receivable as to which such a breach has occurred and is continuing as described
above shall  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 NAFI,  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


                                     37



<PAGE>








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  the Seller's  rights under the  Purchase  Agreement  and 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

      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,


                                     38



<PAGE>








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  (other  than 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 Finance 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
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


                                     39



<PAGE>








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 Indenture
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), 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,  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  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.

      (d) 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


                                     40



<PAGE>








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.

      (g)  The  Servicer  warrants,   represents  and  covenants  to  the  Trust
Collateral  Agent that  recordation of the name of the Servicer as lienholder in
Title Documents respecting any Financed Vehicle is maintained by the Servicer as
agent for the Trust and that the Servicer has


                                     41



<PAGE>








no equitable  ownership in the  Receivables,  except as it may have by virtue of
ownership of a Note 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 held by it,
in trust, for the benefit of the Noteholders and the Insurer.

      SECTION   4.2.   Sub-Servicing   Agreements   between   Servicer  and  the
Sub-Servicers.  The Servicer may enter into Sub-Servicing Agreements with one or
more  Sub-Servicers  for the  servicing  and  administration  of  certain of the
Receivables;  provided however,  that the Servicer shall not enter into any such
Sub-Servicing Agreement with any Sub-Servicer other than OFSA, without 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;
provided further that the Servicer shall not amend any  Sub-Servicing  Agreement
without (i) with respect to a material amendment, the consent of the Insurer and
(ii) with  respect to all other  amendments,  upon five (5) days  prior  written
notice of such amendment. 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
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.
The Servicer shall notify each Rating Agency, the Trust Collateral Agent and the
Insurer upon entering into any Sub-Servicing Agreement.

      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.



                                     42



<PAGE>








      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 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.  Servicer
shall promptly  provide to the Trust Collateral Agent and the Insurer any notice
received from a Sub-Servicer.

      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 Trust Collateral Agent, its designee or any successor Servicer will
thereupon  assume all of the rights and obligations of the Servicer under one or
more  Sub-Servicing  Agreements that may have been entered into by giving notice
of such assumption to the related  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 Trust Collateral Agent, its designee or the
successor  Servicer,  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 the Trust Collateral  Agent, its designee
or the successor Servicer.

      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


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<PAGE>








services industry for similar  Receivables,  and as otherwise expressly provided
by this  Agreement.  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  July 1997,  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 July  1997  will  equal  the
arithmetic  average of the Extension  Ratios for the months June 1997, July 1997
and August  1997 and will be included in the report  delivered  by the  Servicer
pursuant  to Section  4.11 on or before the August  1997  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.

      (b) 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 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.

      (c) The Servicer shall cause OFSA to maintain the Sub-Servicer  Account or
a  comparable  account,  and shall cause any other  Sub-Servicer  to maintain an
account comparable


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<PAGE>








to the Sub-Servicer Account, to which Obligors shall have been directed to remit
payments  in  respect of the  Receivables.  If the  Sub-Servicer  Account or any
comparable  account  maintained by a  Sub-Servicer  is terminated for any reason
prior to the  establishment  of, and  notification to Obligors to remit payments
to, a replacement  servicing account comparable to the 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 pursuant to a Lockbox
Agreement  and  notify  all  Obligors  to  remit  payments  in  respect  of  the
Receivables to such Lockbox Account.

      (d)  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.

      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 related  Sub-Servicer  and its
successors  and assigns.  Servicer  shall  maintain and keep in place a vendor's
single interest insurance policy.

      SECTION 4.8. Realization upon Defaulted  Receivables.  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 Insurance
Proceeds or 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


                                     45



<PAGE>








Servicer shall be reimbursed for Liquidation  Expenses  (including  advances) by
retention of the required  reimbursement from the first Liquidation  Proceeds or
Insurance  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.

      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 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).

      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 Indenture  Trustee,  each Rating Agency, the Insurer
and the Seller a statement  substantially in the form attached hereto as Exhibit
4.11 (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 4.11, 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


                                     46



<PAGE>








(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. 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 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.

      (b) The Servicer shall deliver to the Trust Collateral Agent, the Insurer,
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


                                     47



<PAGE>








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  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.

      (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 and the


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<PAGE>








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. On or before the fourth  Business Day, but in
no event later than the fifth  calendar  day, of each month,  the Servicer  will
deliver or cause to be delivered to the Trust Collateral Agent and the Insurer a
computer tape and a diskette (or any other electronic transmission acceptable to
the Trust Collateral  Agent and the Insurer in a format  acceptable to the Trust
Collateral Agent and the Insurer, 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 September  30,  1997,  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 beinning 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.


                                     49



<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, 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


                                     50



<PAGE>








      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 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(b);  (ii) the Purchase  Amount received in respect of any Purchased
Receivables  pursuant to Sections 2.4, 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.

      (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 Receivable or property acquired in respect thereof that has
been retransferred to the Seller pursuant to Sections 2.4, 3.2, 4.1 or 11.1, 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.



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<PAGE>








      (d) Funds on deposit in the Collection Account,  the Pre-Funding  Account,
the  Note  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.

      (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.



                                     52



<PAGE>








      (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,  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 (b) 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.

            (ii) 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  Physical
            Property  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 a financial intermediary (as


                                     53



<PAGE>








            such term is  defined in Section  8-313(4) of the UCC) acting solely
            for the Trust collateral Agent;

                  (C) 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  (b)  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

                  (D) any  Trust  Account  Property  that is an  "uncertificated
            security"  under  Article 8 of the UCC and that is not  governed  by
            clause (C) above shall be delivered to the Trust Collateral Agent 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   registration  of  the  Trust
            Collateral Agent's (or its nominee's) ownership of such security.

      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


                                     54



<PAGE>








      excess of the Required  Reserve  Amount for such  Distribution  Date.  Any
      amounts  remaining  in  the  Pre-Funding  Period  Reserve  Account  on the
      Distribution  Date which  immediately  follows the end of the  Pre-Funding
      Period  after  taking  into  account  the  transfer  pursuant  to  Section
      5.7(a)(i) 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
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 1997-1 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


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<PAGE>








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.

      (b) The  proceeds  of any  purchase  or sale of the  assets  of the  Trust
described in Section 11.1 hereof shall be deposited in the Collection Account.

      SECTION 5.7.  Distributions.

      (a) On each  Distribution  Date, the Trust  Collateral  Agent shall (based
solely on the information  contained in the Servicer's report 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,


                                     56



<PAGE>








      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 together with (i) funds withdrawn from the Spread
Account,  if any,  (ii) the Policy  Claim  Amount,  if any, and (iii) any amount
deposited to the Distribution  Account pursuant to Section 5.11 (such amounts so
deposited  to be applied  only as directed by the  Insurer)  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,  and in the case of the Policy
Claim Amount,  for Scheduled  Payments (as defined in the Policy) only) from the
Distribution Account in the following order of priority:

            (i) 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) to each of the Trust Collateral  Agent, the Indenture  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)   to  the   Note   Distribution   Account,  the   Noteholders'
      Distributable Amount;

            (iv) 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;

            (v) to the Collateral  Agent for deposit to the Spread  Account,  an
      amount,  if  necessary,  required  to increase  the amount  therein to the
      Requisite  Amount  (after  taking into  account all  withdrawals  from the
      Spread Account on such Distribution Date);

            (vi) 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)  to the  Indenture  Trustee  and  the  Owner  Trustee  for any
      unreimbursed expenses and to pay any indemnities owed by the Seller to the
      Indenture  Trustee  under the  Indenture or to the Owner Trustee under the
      Trust Agreement;



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<PAGE>








            (viii) 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) 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)  to  reimburse   the  Seller  for   expenses   incurred  by  and
      reimbursable  to the Seller  pursuant to the Indenture and this Agreement;
      and

            (xi) to the holder(s) of the Trust Certificates,  the balance of any
      funds remaining in the Distribution  Account after application pursuant to
      the preceding clauses (i) through (x).

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.

      (c) Each Certificateholder,  by its acceptance of its 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 or the  proceeds  of any such  amount
shall vest in such Certificateholder  until such amount have 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 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 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 fo such monies as
aforesaid, such monies being held in trust for the benefit


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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  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

            (ii)  to  the  Holders  of the  Notes,  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  the statement  provided to the Trust  Collateral  Agent by the
Servicer pursuant to Section 5.10 hereof on such Distribution Date.



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      (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
Holder 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  3.13 of the  Trust
Agreement,  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.

      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 $6,689,091.18 from the proceeds
of the sale of the Notes. On each  Subsequent  Transfer Date, the Servicer shall
instruct the Trust Collateral Agent to


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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 in
accordance with the priority of payments under Section 5.7(b).

      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
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 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


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<PAGE>








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.

      (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 the
allocation of such funds to payment of interest on and principal paid in respect
of any Note. The Insurer shall


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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.

      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
Holder,  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


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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.

                                  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 this Agreement  (including all instruments of transfer to be
delivered pursuant to this Agreement) and the other Transaction Documents by the
Seller and the consummation of the transactions  contemplated hereby and thereby
have been duly and validly authorized; this


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<PAGE>








Agreement 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 whether  enforcement is
sought in a proceeding in equity or at law);  and all requisite  action has been
taken by the Seller to make this Agreement and the other  Transaction  Documents
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 Documents;

      (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
instruments (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;

      (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  Basic  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;


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<PAGE>









      (g) there are no 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 (e) 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 Noteholder 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;

      (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;


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      (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.

      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 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.



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      (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.



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      (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
Custodian  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.


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<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 each of the Transaction Documents to which it is a party;

      (c)  the  consummation  of the  transactions  contemplated  by  the  Basic
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 the  properties  pursuant to
the terms of any such agreement  indenture or loan or credit  agreement or other
instrument (aside from the lien created pursuant


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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;

      (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  (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  the  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


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<PAGE>








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.

      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 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 or any Affiliate thereof of any Financed Vehicle.

      (c) The Servicer  shall  indemnify,  defend and hold harmless the Trustee,
the Trust Collateral Agent 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 willfully
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 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


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<PAGE>








issuance  and  original  sale of the  Securities)  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 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 Securities) 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 Owner Trustee,  the Insurer,  their
respective  officers,  directors,  agents and employees and the Noteholders from
and  against  any  and  all  costs,  expenses,   losses,  claims,  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,  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 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 Securities.

      (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


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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 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  9.01  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.

      (c) Any Person (i) into which the Trust  Collateral Agent may be merged or
consolidated, (ii) resulting from any merger or consolidation to which the Trust
Collateral Agent shall be a party, (iii) which acquires by conveyance,  transfer
or lease  substantially all of the assets of the Trust Collateral Agent, or (iv)
succeeding  to  the  business  of  the  Trust  Collateral  Agent,  in any of the
foregoing  cases shall  execute an  agreement  of  assumption  to perform  every
obligation of the Trust  Collateral  Agent under this Agreement and,  whether or
not such assumption  agreement is executed,  shall be the successor to the Trust
Collateral  Agent under this  Agreement  without the  execution or filing of any
paper or any further act on the


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part of any of the parties to this Agreement,  anything in this Agreement to the
contrary notwithstanding.  The Trust Collateral Agent or its successor hereunder
shall  provide  the  Servicer  and the Insurer  with  prompt  notice of any such
transaction.  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 from any
obligation.

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

      (a) The Servicer will defend and indemnify the Trust Collateral Agent, 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  out of or  resulting  from  the  use or  operation  of any
Financed Vehicle by the Servicer or any Sub-Servicer.  In addition, the Servicer
will defend and  indemnify  the Trust  Collateral  Agent,  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, its 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


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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 and any director,  officer, employee
or agent of any Seller or the 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.

      (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 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 Servicer shall defend,  indemnify and hold harmless the Trust, the
Trust Collateral  Agent,  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  the  Trust,  the Trust  Collateral  Agent or the
Noteholders  with respect to the  transactions  contemplated  in this Agreement,
including,  without limitation,  any sales, gross receipts, general corporation,
tangible  personal  property,  privilege or license taxes (but not including any
taxes  asserted  with  respect  to,  and as of the  date  of,  the  sale  of the
Receivables  and the other Trust Property to the Trust  Collateral  Agent 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.

      (d) The Servicer shall indemnify,  defend and hold harmless the Trust, the
Trust Collateral  Agent,  the Insurer,  their  respective  officers,  directors,
agents and  employees  and the  Noteholders  from and against any and all costs,
expenses, losses, claims, damages, and


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liabilities  to the extent that such cost,  expense,  loss,  claim,  damage,  or
liability  arose out of, or was imposed  upon the Trust  Collateral  Agent,  the
Trust, the Insurer or the Noteholders through the breach of this Agreement,  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.

      (e) Notwithstanding  anything herein to the contrary, the Trust Collateral
Agent shall not 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.

      (f) The parties  expressly  acknowledge  and  consent to Harris  Trust and
Savings Bank acting in the possible dual  capacity of successor  Servicer and in
the capacity as Trust  Collateral  Agent.  Harris Trust and Savings 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.

     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;
provided,  however,  that such  consent  shall not be  required  for the initial
delegation  to  OFSA.  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


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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.

                                   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


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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

      (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



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      (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 4.12 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,  Noteholders
evidencing  in the  aggregate  not less  than 51% of the  aggregate  outstanding
Principal Balance of the Notes),  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 Section  9.04  hereof,  and (ii)
subject to 10.03,  appoint the Backup Servicer as the successor  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 10.03. 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.


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<PAGE>









      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  10.02,  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
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.



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      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  4.14,  or (iii) upon the  resignation  of the
Servicer  pursuant to Section 9.5, the Backup Servicer (unless the Insurer shall
have  exercised its option  pursuant to Section  10.3(b) to appoint an alternate
successor  Servicer)  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 4.14 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 (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 successor  servicer,  any Noteholders or any
other Person if it does so.  Notwithstanding  the above, if the Trust Collateral
Agent shall be legally  unable or unwilling  to act as Servicer,  and an Insurer
Default  shall have occurred and be  continuing,  a Note Majority may petition a
court of  competent  jurisdiction  to appoint any Eligible  Sub-Servicer  as the
successor  to the  Servicer.  Pending  appointment  pursuant  to  the  preceding
sentence,  the Trust Collateral Agent 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.  Subject to Section 9.6, no provision  of this  Agreement  shall be
construed as relieving the Trust  Collateral  Agent of its obligation to succeed
as successor  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, the Insurer or in the event
that an Insurer Default shall have occurred and be continuing,  a Note Majority,
appoints a third  party to serve as  Servicer  other  than the Trust  Collateral
Agent,  the Trust  Collateral  Agent  shall  not be  relieved  of its  duties as
successor Servicer hereunder. If the Backup Servicer refuses or is unable to act
as successor Servicer hereunder,  the Trust Collateral Agent may, if it shall be
unwilling to so act, or shall, if it is unable to so act, appoint, or petition a
court of competent jurisdiction to appoint, any experienced servicer of


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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.  The Trust  Collateral  Agent  shall  obtain the prior
written  consent of the Insurer  (unless an Insurer  Default has occurred and is
continuing)  before  appointing  a  successor  Servicer  other  than the  Backup
Servicer,  and any successor  Servicer  other than the Backup  Servicer shall be
satisfactory  to the  Insurer  (unless an Insurer  Default has  occurred  and is
continuing).  Pending appointment of a successor to the Servicer hereunder,  the
Trust  Collateral Agent shall act in such capacity as hereinabove  provided.  In
connection with such appointment and assumption,  the Trust Collateral Agent may
make such arrangements for the compensation of such successor 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, holders of Notes evidencing a
majority of the aggregate  outstanding  Principal  Amount of the Notes) 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 Trust Collateral  Agent,  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%).  The Seller,  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.

      If the Trust  Collateral  Agent 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 Trust Collateral Agent 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 9.6 and the Seller shall,
with the written  consent of the Insurer  (unless an Insurer  Default shall have
occurred  and be  continuing),  appoint,  or the Trust  Collateral  Agent  shall
petition a court to appoint, a successor trust collateral agent. To the extent a
successor Servicer is appointed,  the Trust Collateral Agent 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.



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      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 Indenture 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



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            (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.

      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 Holders,
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 Trust  Collateral  Agent,  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 Trust Collateral Agent.

      (b) In the  absence  of bad faith or  negligence  on its  part,  the Trust
Collateral Agent 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 Trust  Collateral  Agent 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 Trust
Collateral  Agent,  the Trust  Collateral Agent 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 Trust  Collateral  Agent shall have no  liability  for any actions
taken or omitted by the Servicer.



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                                  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  each 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 relevant party exercising such option.

      (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 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.



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                                  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, 5.4, 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
      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


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      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:

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



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            (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 5.5 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 Trust Collateral  Agent 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.



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                                 ARTICLE XIII

                           Miscellaneous Provisions

      SECTION 13.1.  Amendment.

      (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


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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.

      (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 1997- 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  1997- 1 Spread
Account or uses of funds on deposit in the Series 1997-1  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


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<PAGE>








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.

      (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


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<PAGE>








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:

            (1) 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

            (2)  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.



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      (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 Holder 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.

      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


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(or if an Insurer  Default shall have occurred and be continuing  the Holders of
Notes  evidencing 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


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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.

      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 and Trustee.

      (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 and VIII 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


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<PAGE>








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 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  Holders  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


                                     97



<PAGE>








notice to the Trust  Collateral  Agent.  The Insurer  may give or  withhold  any
consent hereunder in its sole and absolute discretion.

      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  1997-1 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
                                    its individual capacity and as Servicer,


                                    By:
                                          Name:
                                          Title:




                                     98



<PAGE>








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


                                    By:
                                          Name:
                                          Title:



                                     99



<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;


                                     1



<PAGE>









      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;

      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


                                     2



<PAGE>








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;

      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;



                                     3



<PAGE>








      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
Receivable  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;

      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;


                                     4



<PAGE>









      24. the information regarding such Receivables set forth in the applicable
Receivable  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
Receivable 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;

      29. as of the Initial Cut-off Date, the APR of the Initial Receivables was
approximately  19.38% and the weighted average remaining  scheduled  maturity on
the Initial Receivables was approximately 50.31 months and the percentage of the
aggregate  outstanding  balance  of  the  Initial  Receivables  relating  to the
financing of used Financed Vehicles was 80.45%. The final scheduled payment date
on the  Initial  Receivable  with the latest  maturity  is June 29,  2002.  Each
Receivable amortizes based on a Simple Interest Method or Actuarial Method; and

      30. no Receivable provides for a prepayment penalty.



                                     5



<PAGE>








                                 EXHIBIT 5.10

                       FORM OF STATEMENT TO NOTEHOLDERS



                                     1



<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 June 29, 1997,  among  National  Financial  Auto Funding  Trust (the
"Seller"), the Company, as the Servicer,  National Auto Finance 1997-1 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 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 datd 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             , 19   .


                                     1



<PAGE>









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


                                    By:
                                    Name:
                                    Title:



                                     2



<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 June 29, 1997, among the Seller, National Auto Finance Company, Inc.
(the  "Company"),  as the  Servicer,  National  Auto  Finance  1997-1 Trust (the
"1997-1  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  Subsequent  Receivables by the Seller to the 1997-1 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 1997-1 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 1997-1  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.



                                     1



<PAGE>








      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 ________, 1999___.

                                          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:



                                     2



<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 1997-1 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,                      , 1997.

          "Subsequent Transfer Date" shall mean. with respect to the Subsequent
Receivables conveyed hereby,                      , 1997.

      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  Receivable  Schedule is marked as Schedule I 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.



                                     1



<PAGE>








      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 Trustee,  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:

      (a) 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.



                                     2



<PAGE>








      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.

      (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 Seller's Transaction Documents.

      (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 Seller's  Transaction  Documents 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 Seller's  Transaction  Documents,  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.



                                     3



<PAGE>








      (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 issuance of the Securities or 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 Securities.

      (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.



                                     4



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      (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 Receivable 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 Receivable 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 6.1
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 6.1 of the Sale and  Servicing  Agreement and
(ii) the satisfaction of the conditions set forth in this Section 5.

      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.



                                     5



<PAGE>








      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 incure 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 9, 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.

      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   1997-1  TRUST  by
                                    Wilmington   Trust   Company,   not  in  its
                                    individual  capacity  but  solely  as  Owner
                                    Trustee on behalf of the Trust,



                                    By
                                    Title:




                                     6



<PAGE>








                                    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:



                                     7



<PAGE>







                                   EXHIBIT B

                       FORM OF SERVICER'S CERTIFICATE


                                     1



<PAGE>