<PAGE>   1





                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549
                                   FORM 10-Q

(Mark One)

[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

                 For the quarterly period ended March 31, 1998

                                       OR

[  ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

         For the transition period from _____________ to _____________



                         Commission file number 0-22067


                      NATIONAL AUTO FINANCE COMPANY, INC.
                      -----------------------------------
             (Exact name of registrant as specified in its charter)



<TABLE>
 <S>                                                                         <C>

                                  DELAWARE                                                65-0688619         
 --------------------------------------------------------------              --------------------------------
 (State or other jurisdiction of incorporation or organization)              (IRS Employer Identification No.)



     621 N.W. 53rd  Street, Suite 200, Boca Raton, Florida                                 33487        
 -------------------------------------------------------------               ---------------------------
 (Address of principal executive offices)                                            (Zip Code)
</TABLE>


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


                                   No Change
                                   ---------
  (Former name, former address and former fiscal year, if changed since last
                                    report)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.  Yes  X  No 
                                        ---     ---

 There were 9,030,762 shares of common stock, $.01 par value outstanding as of
                                 May 15, 1998.
<PAGE>   2
                      NATIONAL AUTO FINANCE COMPANY, INC.
                               INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
                                                                                                     PAGE
                                                                                                     ----
<S>                                                                                                   <C>
PART 1. FINANCIAL INFORMATION
    Item 1.    Financial Statements (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . .      4
              Balance Sheets:
                   March 31, 1998 and December 31, 1997   . . . . . . . . . . . . . . . . . . . .      4
                 Statements of Income:
                   Three Months Ended March 31, 1998 and 1997   . . . . . . . . . . . . . . . . .      5
                 Statements of Stockholders' Equity as of March 31, 1998 and 1997 . . . . . . . .      6
                 Statements of Cash Flows:
                   Three Months Ended March 31, 1998 and 1997   . . . . . . . . . . . . . . . . .      7
                 Notes to Financial Statements  . . . . . . . . . . . . . . . . . . . . . . . . .      9
    Item 2.    Management's Discussion and Analysis of Financial Condition and
                   Results of Operations  . . . . . . . . . . . . . . . . . . . . . . . . . . . .     17

PART II. OTHER INFORMATION
    Item 6.    Exhibits and Reports on form 8-K . . . . . . . . . . . . . . . . . . . . . . . . .     26
    SIGNATURES  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     27
    EXHIBIT INDEX   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     28
      Exhibit 11.   Computation of Earnings Per Common Share  . . . . . . . . . . . . . . . . . .     29
      Exhibit 27.   Financial Data Schedule   . . . . . . . . . . . . . . . . . . . . . . . . . .     30
</TABLE>

















                                       2
<PAGE>   3
FORWARD-LOOKING STATEMENTS

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

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





                                       3
<PAGE>   4
Part I

Item I.  Financial Statements

                      NATIONAL AUTO FINANCE COMPANY, INC.
                    Consolidated Balance Sheets (unaudited)
                      March 31, 1998 and December 31, 1997
                             (dollars in thousands)


<TABLE>
<CAPTION>
                                                                                   March 31,    December 31,
                                                                                      1998             1997 
                                                                               ------------     ------------
<S>                                                                            <C>              <C>
ASSETS:
Cash and cash equivalents                                                      $     26,724     $     26,467
Retained interest in securitizations, at fair value                                  45,100           31,569
Furniture, fixtures and equipment                                                     2,430            2,262
Deferred financing costs                                                              3,168            2,539
Related party receivables                                                                 -              155
Other assets                                                                          2,791            1,883
                                                                                 ----------       ----------
   Total assets                                                                $     80,213     $     64,875
                                                                                 ==========       ==========

LIABILITIES:
Accounts payable and accrued expenses                                          $      2,534     $      3,260
Accrued interest payable-related parties                                                 39               39
Accrued interest payable-senior subordinated notes                                    1,187              132
Accrued interest payable-notes                                                           15               50
Junior subordinated notes-related parties                                             1,940            1,940
Senior subordinated notes                                                            52,774           34,546
Notes payable                                                                         1,598            1,614
                                                                                 ----------       ----------
   Total liabilities                                                                 60,087           41,581
                                                                                 ----------       ----------

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

STOCKHOLDERS' EQUITY:
Common stock -$0.01 par value; 20,000,000 shares authorized;
       9,030,762 shares outstanding                                                      90               90
Paid-in-capital                                                                      36,381           34,417
Accumulated deficit                                                                 (18,681)         (13,549)
                                                                                 ----------       ---------- 
   Total stockholders' equity                                                        17,790           20,958
                                                                                 ----------       ----------
   Total liabilities, mandatorily redeemable preferred stock and
     stockholders' equity                                                      $     80,213     $     64,875
                                                                                 ==========       ==========
</TABLE>

See accompanying notes to the consolidated financial statements.





                                       4
<PAGE>   5
                      NATIONAL AUTO FINANCE COMPANY, INC.
               Consolidated Statements of Operations (unaudited)
               For the Three Months Ended March 31, 1998 and 1997
                     (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                 Three Months Ended March 31,  
                                                                               --------------------------------
                                                                                      1998                1997
                                                                               ------------       ------------
                                                                                                     (Restated)
<S>                                                                            <C>                <C>
REVENUE:
  Securitization related income                                                $         74       $      2,052
  Servicing income                                                                    1,272                537
  Interest income                                                                       696                167
  Other income                                                                           78                 41
                                                                                 ----------         -----------
    Total revenue                                                                     2,120              2,797
                                                                                 ==========         ==========

EXPENSES:
  External servicing expenses                                                           840                612
  Internal servicing expenses                                                         1,464                 -
  Interest expense                                                                    1,530                415
  Salaries and employee benefits                                                      1,643              1,324
  Direct loan acquisition expenses                                                      651                701
  Depreciation and amortization                                                         187                179
  Other operating expenses                                                              937                753
                                                                                 ----------         ----------
    Total expenses                                                                    7,252              3,984
                                                                                 ----------         ----------
Loss before income taxes                                                             (5,132)            (1,187)
Income taxes (benefit)                                                                    -               (457)
                                                                                 ----------         ---------- 
   Net loss before taxes from reorganization of partnership                          (5,132)              (730)
                                                                                 ----------         ---------- 
Income taxes from reorganization of partnership                                           -              5,416
                                                                                 ----------         ----------
   Net loss                                                                          (5,132)            (6,146)
Preferred stock dividends                                                                40                 27
                                                                                 ----------         ----------
Loss attributed to common shareholders                                         $    (5,172)       $     (6,173)
                                                                                 =========          ========== 

PER SHARE DATA:
Loss per common share - basic                                                  $     (0.57)       $      (0.89)
Loss per common share - diluted                                                $     (0.57)       $      (0.89)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic                                                                                 9,031              6,898
Diluted                                                                               9,031              6,898
</TABLE>

See accompanying notes to the consolidated financial statements.





                                       5
<PAGE>   6
                      NATIONAL AUTO FINANCE COMPANY, INC.
          Consolidated Statements of Stockholders' Equity (unaudited)
               For the Three Months Ended March 31, 1998 and 1997
                             (dollars in thousands)


<TABLE>
<CAPTION>
                                                                Common       Paid in     Retained
                                                                 Stock       Capital     Earnings     Total 
                                                                --------   ----------   ----------   --------
<S>                                                             <C>       <C>          <C>          <C>
Balance as of December 31, 1997                                 $     90  $    34,417  $  (13,549)  $   20,958

Issuance of 593,671 Warrants to purchase Common Stock
    in connection with the issuance of Senior
    Subordinated Notes                                                          2,004                    2,004

Dividends on mandatorily redeemable preferred stock                              (40)                      (40)
                                                                                             
Net loss                                                                                    (5,132)     (5,132)
                                                                  ------     --------    ---------    --------

Balance as of March 31, 1998                                    $     90  $    36,381  $   (18,681) $   17,790
                                                                  ======     ========    =========    ========


                                                                                                  Equity of
                                                              Common     Paid-in    Retained     Predecessor
                                                               Stock     Capital    Earnings       Entity       Total
                                                               -----     -------    --------       -------      ------
Balance as of December 31, 1996                                                                      9,551        9,551
      Net income from January 1, 1997
      through reorganization on January 29, 1997                                                       526          526
      Assets retained by partnership                                                                   (31)         (31)
                                                                                                   -------      ------- 

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

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

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

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

Issuance of 2,300,000 shares of common stock
   in initial public offering, net of costs                       23       16,961                                16,984

Dividends on mandatorily redeemable preferred stock                           (27)                                  (27)

Net loss subsequent to reorganization                                                  (1,256)                   (1,256)
                                                              ------     --------     -------      -------      ------- 

Balance as of March 31, 1997                                 $    70    $  19,391    $ (1,256)    $      0     $ 18,205
----------------                                              ======     ========     =======      =======      =======
(1) $2,295 of such amount was attributed to mandatorily redeemable preferred stock.
</TABLE>

See accompanying notes to the consolidated financial statements.





                                       6
<PAGE>   7
                      NATIONAL AUTO FINANCE COMPANY, INC.
               Consolidated Statements of Cash Flows (unaudited)
               For the Three Months Ended March 31, 1998 and 1997
                             (dollars in thousands)

<TABLE>
<CAPTION>
                                                                                         Three Months Ended
                                                                                               March 31,    
                                                                                     --------------------------
                                                                                          1998          1997
                                                                                     -----------    -----------
                                                                                                     (Restated)
<S>                                                                                  <C>            <C>
CASH FLOW OPERATING ACTIVITIES:
Net loss                                                                             $    (5,132)   $    (6,146)
 Adjustments to reconcile net income (loss) to net cash used in
  operating activities:
  Securitization related income                                                              (74)        (2,052)
  Depreciation expense                                                                       143             37
  Provision for credit losses                                                                  -             77
  Purchases of loans held for sale                                                       (47,422)       (34,909)
  Proceeds from transfer of loans to Master Trust                                         47,422         33,813
  Cash flows from Retained Interest released to Company                                    1,768          3,331
  Cash deposits to Spread Accounts                                                       (15,227)        (3,835)
  Amortization and write-off of deferred financing costs                                     122             68
  Amortization of deferred placement costs                                                     -             74
  Amortization of warrants                                                                   233             -
  Changes in other assets and liabilities:
    Other assets                                                                            (753)       (1,429)
    Accounts payable and accrued expenses                                                   (726)          (67)
    Accrued interest payable-related parties                                                   -           (59)
    Accrued interest payable-senior subordinated notes
      and other notes                                                                      1,020          (139)
    Deferred income taxes                                                                      -         4,959
                                                                                       ---------      --------
Net cash used in operating activities                                                    (18,626)       (6,277)
CASH FLOW FROM INVESTING ACTIVITIES:
  Fixed assets purchased                                                                    (309)         (287)
                                                                                       ---------      -------- 
Net cash used in investing activities                                                       (309)         (287)
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from senior subordinated notes                                                 19,248             -
  Principal payments on junior subordinated notes-related parties                              -        (5,186)
  Principal payments on notes                                                                (16)            -
  Proceeds from initial public offering                                                        -        17,759
  Due to National Auto Finance Corporation                                                     -          (178)
  Payment of preferred stock dividends                                                       (40)               
                                                                                       --------       ---------
  Net cash provided by financing activities                                               19,192        12,395
                                                                                       ---------      --------
  Net increase in cash and cash equivalents                                                  257         5,831
  Cash and cash equivalents in beginning of period                                        26,467         5,066
                                                                                       ---------      --------
  Cash and cash equivalents at end of period                                         $    26,724    $   10,897
                                                                                       =========      ========
SUPPLEMENTAL CASH FLOW INFORMATION:
  Cash paid for income taxes                                                         $         -    $        -
                                                                                       =========      ========
  Cash paid for interest                                                             $       280    $      445
                                                                                       =========      ========
</TABLE>





                                       7
<PAGE>   8



<TABLE>
<CAPTION>
                                                                                         Three Months Ended
                                                                                              March 31,    
                                                                                     --------------------------
                                                                                          1998          1997
                                                                                     -----------     ----------
                                                                                                     (Restated)
<S>                                                                                  <C>            <C>
NON-CASH FINANCING ACTIVITIES:
  Offering costs deferred in 1996 transferred to paid-in capital in 1997             $         0    $      775
  Accrued mandatorily redeemable preferred stock dividends                                     0            40
  Conversion of deferred interest on senior subordinated debt to common
    stock and paid-in capital                                                                  0           169
  Conversion of predecessor entity capital to mandatorily redeemable
    preferred stock                                                                            0         2,295
  Conversion of predecessor entity capital to common stock and
    paid-in capital                                                                            0         7,225
  Deferred taxes from reorganization considered reduction in paid-in capital                   0         5,416
  Income earned in 1997 prior to reorganization included in
    paid-in capital                                                                            0           526
  Issuance of 593,671 warrants in conjuction with senior subordinated
    notes considered paid-in-capital                                                       2,004             0
</TABLE>


See accompanying notes to the consolidated financial statements.





                                       8
<PAGE>   9
                      NATIONAL AUTO FINANCE COMPANY, INC.
                   Notes to Consolidated Financial Statements
                                 March 31, 1998
                                  (unaudited)





(1)  BASIS OF PRESENTATION

     In April 1998, National Auto Finance Company, Inc. ("the Company")
     announced that it would likely be restating its financial statements for
     each of the first, second and third quarters of 1997.  The comparative
     amounts included herein reflect the restated amounts for the first quarter
     of 1997.  Further information regarding the restatement is provided in
     Note 2 below.

     The accompanying unaudited interim consolidated financial statements at
     March 31, 1998 and December 31, 1997 and for the three month periods
     ended March 31, 1998 and 1997 have been prepared pursuant to the rules
     and regulations of the Securities and Exchange Commission.  Accordingly,
     certain information and footnotes required by generally accepted
     accounting principles for complete financial statements are not included
     herein.  The interim statements should be read in conjunction with the
     financial statements and notes thereto included in the Company's latest
     Annual Report on Form 10-K (capitalized terms used herein and not defined
     shall have the meanings ascribed to them in such Form 10-K).

     Interim statements are subject to possible adjustments in connection with
     the annual audit of the Company's accounts for the full year 1998; in the
     Company's opinion, all adjustments necessary for a fair presentation of
     these interim statements have been included and are of a normal and
     recurring nature.  The results for the interim periods are not necessarily
     indicative of results for a full year.  Certain amounts in the 1997
     financial statements have been reclassified to conform with current
     financial statement presentation.

(2)  RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS

     In April 1998, the Company announced that it would likely be restating its
     financial statements for each of the first, second and third quarters of
     1997.

     The Company has restated its consolidated financial statements for the
     first quarter of 1997.  The restatement resulted from applying the
     Company's December 31, 1997 model pursuant to SFAS No. 125 relating to the
     calculation of securitization income and the related valuation of Retained
     Interest in Securitizations based upon facts and assumptions as of March
     31, June 30 and September 30, 1997.

     The significant changes in methodologies and assumptions at March 31, 1997
     included:

           1)   Present valuing in conjunction with the implementation of SFAS
                No. 125 on January 1, 1997 of the Company's Spread Accounts
                that includes Cash Spread Accounts and Over-Collateralization
                Accounts and is a component of the Company's Retained Interest
                in Securitizations.
           2)   Expensing of certain previously capitalized fees and costs
                incurred in connection with prior securitization transactions.
           3)   Accrual of certain anticipated costs associated with future
                securitizations.





                                       9
<PAGE>   10
                      NATIONAL AUTO FINANCE COMPANY, INC.
                   Notes to Consolidated Financial Statements
                                 March 31, 1998
                                  (unaudited)



                     Consolidated Balance Sheet (Unaudited)
                              As of March 31, 1997
                             (dollars in thousands)


<TABLE>
<CAPTION>
                                                                                 Reported        As Adjusted
                                                                               ------------     ------------
<S>                                                                            <C>              <C>
ASSETS:
Cash and cash equivalents                                                      $     10,897     $     10,897
Retained interest in securitizations, at fair value                                  29,988           26,361
Finance receivables, net                                                              1,038            1,038
Furniture, fixtures and equipment                                                       679              732
Deferred financing costs                                                              1,117            1,039
Other assets                                                                            585            1,725
                                                                                 ----------       ----------
   Total assets                                                                $     44,304     $     41,792
                                                                                 ==========       ==========

LIABILITIES:
Accounts payable and accrued expenses                                          $      1,683     $      1,990
Accrued interest payable-related parties                                                 84               84
Accrued interest payable-senior subordinated notes                                      200              200
Junior subordinated notes-related parties                                             2,032            2,032
Senior subordinated notes                                                            12,000           12,000
Deferred income taxes                                                                 5,130            4,959
                                                                                 ----------       ----------
   Total liabilities                                                                 21,129           21,265
                                                                                 ----------       ----------

Mandatorily redeemable preferred stock series A-$0.01 par value;
 $1,000 stated value; 1,000,000 shares authorized; 2,295 shares
   outstanding; redeemable in January 2005, stated at redemption value                2,295            2,322

STOCKHOLDERS' EQUITY:
Common stock -$0.01 par value; 20,000,000 shares authorized;
   7,026,000 shares outstanding                                                          70               70
Paid-in-capital                                                                      20,364           19,391
Retained earnings                                                                       446           (1,256)
                                                                                 ----------       ----------
   Total stockholders' equity                                                        20,880           18,205
                                                                                 ----------       ----------
   Total liabilities, mandatorily redeemable preferred stock and
     stockholders' equity                                                      $     44,304     $     41,792
                                                                                 ==========       ==========
</TABLE>





                                       10
<PAGE>   11
                      NATIONAL AUTO FINANCE COMPANY, INC.
                   Notes to Consolidated Financial Statements
                                 March 31, 1998
                                  (unaudited)



                     Consolidated Statements of Operations
                   For the Three Months Ended March 31, 1997
                     (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                  Reported         As Adjusted
                                                                               ------------       ------------
<S>                                                                            <C>                <C>
REVENUE:
  Securitization related income                                                $      4,987       $      2,052
  Servicing income                                                                      394                537
  Interest income                                                                       167                167
  Other income                                                                           41                 41
                                                                                 ----------         ----------
    Total revenue                                                                     5,589              2,797
                                                                                 ==========         ==========

EXPENSES:
  External servicing expenses                                                           612                612
  Interest expense                                                                      415                415
  Salaries and employee benefits                                                      1,299              1,324
  Direct loan acquisitions expenses                                                     701                701
  Depreciation and amortization                                                         179                179
  Other operating expenses                                                              753                753
                                                                                 ----------         ----------
    Total expenses                                                                    3,959              3,984
                                                                                 ----------         ----------
Income (loss) before income taxes                                                     1,630             (1,187)
Income taxes (benefit)                                                                  630               (457)
                                                                                 ----------         ----------
   Net income (loss) before taxes from reorganization of partnership                  1,000               (730)
Income taxes from reorganization of partnership                                       4,500              5,416
                                                                                 ----------         ----------
   Net income (loss)                                                                 (3,500)            (6,146)
Preferred stock dividends                                                                27                 27
                                                                                 ----------         ----------
Loss attributed to common shareholders                                         $     (3,527)       $    (6,173)
                                                                                 =========          ========== 

PER SHARE DATA:
Loss per common share - basic                                                  $     (0.51)       $      (0.89)
Loss per common share - diluted                                                $     (0.51)       $      (0.89)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic                                                                                 6,898              6,898
Diluted                                                                               6,898              6,898
</TABLE>





                                       11
<PAGE>   12
                      NATIONAL AUTO FINANCE COMPANY, INC.
                   Notes to Consolidated Financial Statements
                                 March 31, 1998
                                  (unaudited)




(3)  RETAINED INTEREST IN SECURITIZATIONS

     Retained Interest in Securitizations were as follows at March 31, 1998 and
     December 31, 1997:

<TABLE>
<CAPTION>
                                                     March 31,      December 31,
                                                       1998            1997          
                                                   -----------     -------------
                                                       (dollars in thousands)
           <S>                                     <C>              <C>
           Spread Accounts                         $    24,290      $    14,846
           Excess Spread Receivable (ESR)               20,810           16,723
                                                     ---------        ---------
                                                   $    45,100      $    31,569
                                                     =========        =========
</TABLE>

     Assumptions used to value the Retained Interests in Securitizations at
     March 31, 1998 and December 31, 1997 were as follows:
<TABLE>
<CAPTION>
                                                                 March 31,         December 31,
                                                                    1998                1997   
                                                                 ---------          -----------
           <S>                                                <C>                  <C>
           Weighted average cumulative net loss rate               12.88%              12.88%
           Weighted average cumulative prepayment rate             21.40%              20.89%
           Discount rate                                           14.00%              14.00%
           Level of required Cash Spread Account                5% to 11%            5% to 11%
           Rate of interest on Cash Spread Account                  5.50%               5.50%
           Weighted average interest rate on Loans                 19.05%              19.01%
           Weighted average yield on bonds and notes
             held by securitization investors                       6.14%               6.15%
</TABLE>

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

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

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

     In January 1998, the National Auto Finance 1998-1 Trust (the "1998-1
     Trust") was formed and the Master Trust refinanced approximately $93.6
     million of its receivables in a public offering of asset-back securities
     through their transfer by the Master Trust to the 1998-1 Trust, as part of
     a Permanent Securitization.  Payment of principal of, and interest on, the
     $85.2 million of the securities issued in that transaction is insured by
     payment guarantees by FSA, and





                                       12
<PAGE>   13
                      NATIONAL AUTO FINANCE COMPANY, INC.
                   Notes to Consolidated Financial Statements
                                 March 31, 1998
                                  (unaudited)


     such securities are rated AAA and Aaa by Standards & Poor's Rating Service
     and Moody's Investors Service, Inc., respectively.  The proceeds of that
     Permanent Securitization transaction were used by the Master Trust to repay
     the then-outstanding balance of the Class B Certificates. Since such time,
     the Master Trust has issued additional beneficial interests in Loans
     purchased by the Master Trust, as evidenced by the Class B Certificates, to
     finance its purchase of Loans from the Company. The Company expects
     additional Permanent Securitization to be consummated in the future in
     order to refinance periodically amounts outstanding under such Class B
     Certificates.

     Under the financial structures the Company has used to date in its
     securitizations, certain excess cash flows generated by the Loans are
     retained in the Spread Accounts within the securitization trusts to provide
     liquidity and credit enhancement.  While the specific terms and mechanics
     of the Spread Accounts can vary depending on each transaction, the
     Company's agreements with FSA, the financial guaranty insurer that has
     provided credit enhancements in connection with the Company's
     securitizations, generally provide that the Company is not entitled to
     receive any excess cash flows unless the level of certain Spread Account
     balances, comprised of cash and generally a 9% interest in the principal
     balance of the Loans in the trust (the "Over-Collateralization Accounts"),
     have been attained and/or the delinquency or losses related to the Loans in
     the pool are below certain predetermined levels. Additionally, the Company
     is required to maintain a minimum equity position in the Revolving
     Securitization of 14.0% of the net serviced receivables in the Master
     Trust, or 2.5 times net losses, whichever is greater.  This equity
     currently consists of cash invested by the Company and
     over-collateralization in the form of Dealer Discount related to the
     principal balance of Loans.  As of March 31, 1998, the Company had a 20.50%
     equity investment in the Revolving Securitization.

     In the event delinquencies or losses on the Loans exceed such levels
     ("Trigger Events"), the terms of the securitization may:  (i) require
     increased Cash Spread Account balances to be accumulated for the particular
     pool; (ii) restrict the distribution to the Company of excess cash flows
     associated with the pool in which asset-backed securities are insured by
     FSA; and (iii) in certain circumstances, require the transfer of servicing
     on some or all of the Loans in FSA-insured pools to another servicer.  The
     imposition by FSA of any of these conditions could materially adversely
     affect the Company's liquidity and financial condition by delaying the
     timing of cash flows to the Company, thus reducing the value of the
     Retained Interest in Securitizations.  Certain portfolio performance tests
     were not met at various times in the first quarter of 1998 with respect to
     the Permanent Securitization trusts formed in November 1995, November 1996,
     and July 1997 resulting in additional cash being required to be retained in
     the Spread Accounts related to such Permanent Securitization trusts until
     the violation of such performance tests are cured.

     Upon the occurrence of a Permanent Securitization failing to meet portfolio
     performance tests of the nature described above but at significantly higher
     levels (an Insurance Agreement Event of Default), the Company will be in
     default under its insurance agreements with FSA. Upon an Insurance
     Agreement Event of Default, FSA may: (i) permanently suspend distributions
     of cash flow to the Company from the related securitization trust and all
     other FSA-insured trusts until the asset-backed securities have been paid
     in full; (ii) capture all excess cash flows from performing FSA-insured
     trusts; (iii) increase its premiums; and (iv) replace the Company as
     servicer with respect to all FSA-insured trusts.  In April 1997, the
     Permanent Securitization trust formed in November 1995 experienced an
     Insurance Agreement Event of Default. In October 1997, the Company entered
     into an agreement with FSA that:  (i) permanently waived the April 1997
     Insurance Agreement Event of Default; (ii) modified the portfolio
     performance tests described above to increase the thresholds through June
     1998 for the Permanent Securitization trusts formed in November 1995 and
     1996 (temporary revisions); (iii) increased the amount required to be
     retained in the Spread Account related to the November 1995 and 1996 trust
     to an amount generally equal to 11% of the then outstanding balance held by
     the securitization trust if the modified portfolio performance tests are
     not met; (iv) required the Company to cause the Spread Account for each
     FSA-insured securitization trust to be cross-collateralized to the Spread
     Accounts established in connection with each of its other FSA-insured
     securitization trusts; (v) permitted the Company to enter into the $10.0
     million BankBoston Agreement; (vi) provided that FSA would consider
     providing credit enhancement for the Company's next Permanent
     Securitization; and (vii) provided for the issuance of 100,000 shares of
     Common Stock to FSA.  In consideration for such agreement, the Company
     issued 100,000 shares of Common Stock to FSA and reduced securitization
     related income by $700,000 in 1997.  As a result of the aforementioned
     cross-collateralization, the excess cash flow from a performing FSA-insured
     trust may be required to be used to support negative cash flow from, or to
     replenish a deficient Spread Account in connection with, a non-performing
     FSA-insured securitization trust, thereby further restricting excess cash
     flow available to the Company.  If excess cash flow from all FSA-insured
     securitization trusts is not sufficient to replenish all these Spread
     Accounts, no cash flow would be available to the Company for that month.
     The Company's right to service the Loans sold in FSA-insured



                                       13
<PAGE>   14
                      NATIONAL AUTO FINANCE COMPANY, INC.
                   Notes to Consolidated Financial Statements
                                 March 31, 1998
                                  (unaudited)



     securitizations is generally subject to the discretion of FSA. Accordingly,
     there can be no assurance that the Company will continue as servicer for
     such Loans and receive related servicing fees. Additionally, there can be
     no assurance that there will not be additional Insurance Agreement Events
     of Default in the future, or that, if such events of default occur, waivers
     will be available.  If the Company does not meet such requirements in 1998,
     the carrying value of the Company's Retained Interest in Securitizations
     would be materially impacted in a negative manner.  As of March 31, 1998,
     the Company was not in violation of the insurance agreement Event of
     Default.

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

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

     During the three months ended March 31, 1998 and 1997, the following
     activity took place with respect to securitizations:

<TABLE>
<CAPTION>
                                                              March 31,      March 31,
                                                                 1998          1997      
                                                              --------       --------
                                                               (dollars in thousands)
           <S>                                                <C>            <C>
           Principal balance of Loans sold  . . . . . .       $ 48,991       $ 35,712
                                                               =======        =======

           Weighted average coupon rate on Loans
               sold during the period . . . . . . . . .         19.32%         18.88%
                                                                ======         ======
</TABLE>

(4)  SENIOR SUBORDINATED DEBT

     In December 1997, the Company completed a private placement (the "December
     Private Placement") of $10 million in Common Stock and $40 million
     principal amount of Senior Subordinated Notes with detachable Warrants.
     The December Private Placement of the $10 million in Common Stock resulted
     in the issuance of 1,904,762 shares in the aggregate of the Company's
     Common Stock at $5.25 per share.  Additionally, a representative of each
     of two of the Senior Subordinated Debt lenders who were also stock
     purchasers was elected to the Board of Directors.  In March 1998, the
     Company completed a private placement (the "March Private Placement") of
     $20 million principal amount of Senior Subordinated Notes with detachable
     Warrants under terms similar to that of the December Private Placement.
     The principal amount of the aggregate $60 million of Senior Subordinated
     Notes is due in December 2004 and the Senior Subordinated Notes bear
     interest at 11.875% per annum for the first three years, 12.875% per annum
     for year four, 13.875% per annum for year five, and 14.875% per annum
     thereafter, with interest payable quarterly.  In connection with the
     December Private Placement and the March Private Placement, the Company
     issued an aggregate of 1,632,685 detachable Warrants with a ten-year life,
     exercisable into Common Stock of the Company at $0.01 per share.  The fair
     value of such Warrants was estimated to be based upon a share value of
     $5.25 for the December Private Placement and $3.37 for the March Private
     Placement, for a total of $7.5 million.  Such amount is recorded as a
     discount to the related debt and additional paid-in capital, and is being
     amortized over the life of the debt using the interest method.  The
     effective interest rate, including the value of the Warrants is
     approximately 15%.

     In conjunction with the March Private Placement, placement fees of
     $400,000 and $200,000 were paid to First Union Capital Markets Corp. and
     National Financial Companies, L.L.C., respectively.  Additionally, a fee
     of $200,000 was paid to the Lender.

     The Company is in violation of the Minimum Consolidated Net Worth and
     Adjusted Interest Expense covenants contained in the Securities Purchase
     Agreements pursuant to which it issued $60,000,000 aggregate principal
     amount of Senior Subordinated Notes.  The Minimum Consolidated Net Worth
     covenant requires that the Company maintain Consolidated Net Worth (as
     defined) of not less than (a) $25,890,000 plus (b) on a cumulative basis
     commencing with the first fiscal quarter ending March 31, 1998, 50% of net
     income (if positive) for each fiscal quarter plus (c) 100% of



                                       14
<PAGE>   15
                      NATIONAL AUTO FINANCE COMPANY, INC.
                   Notes to Consolidated Financial Statements
                                 March 31, 1998
                                  (unaudited)



     the net proceeds from any public offering or private placement of common
     stock.  The Adjusted Interest Expense covenant requires generally that the
     sum of the Company's Net Income (as defined), Consolidated Total Interest
     Expense (as defined) and income and franchise taxes divided by its
     Consolidated Total Interest Expense (as defined) for each period of four
     fiscal quarters ending December 31, 1997 and thereafter be at least 1.4:1.
     The Company is in discussions with the lenders under such debt agreements
     to obtain waivers of the breach of such covenant violations.  If such
     waivers are not obtained, the holders of the indebtedness represented
     thereby may declare a default and accelerate the payment of the principal
     amount of such indebtedness.

(5)  JUNIOR SUBORDINATED NOTES

     The Junior Subordinated Notes are payable to certain affiliates on January
     31, 2002, and accrue interest at 8% per annum.  Such debt is subordinated
     to all other debt of the Company.  Interest expense recognized for this
     debt for the three months ended March 31, 1998 and 1997 was $39,000 and
     $84,000, respectively.

(6)  NOTES PAYABLE

     The Company has entered into a $1.5 million revolving credit agreement
     ("FUNB Note") dated as of August 25, 1997 with First Union National Bank
     to fund the purchase of furniture and equipment ("collateral") for the
     Company's service center and corporate headquarters.  FUNB retains a
     security interest in the collateral.  The FUNB Note accrues interest at
     the one month London Interbank offered rate plus 2.5% (8.19% at March 31,
     1998), payable monthly.  The principal amount of the FUNB Note is payable
     monthly beginning March 1998 and matures March 2001.  As of March 31,
     1998, the principal amount owed by the Company was $1.0 million.  Interest
     expense recognized for this debt for the three month period ended March
     31, 1998 was $21,000.

     As of September 29, 1997, the Company entered into the BankBoston
     Agreement, a three year, $10.0 million revolving credit facility secured
     by Loans.  This debt accrues interest at the greater of the prime rate of
     the federal funds rate plus 0.50% (8.5% at March 31, 1998), payable
     monthly.  As of March 31, 1998, the principal amount owed by the Company
     was $254,000.  At March 31, 1998, the Company was in violation of the
     BankBoston Agreement's Minimum Quarterly Net Income and Minimum Debt
     Service Coverage Covenants.  The Company repaid the remaining balance in
     April 1998 and does not intend to borrow under the BankBoston Agreement in
     the foreseeable future.  Interest expense recognized for this debt for the
     three month period ended March 31, 1998 was $15,000.

     The Company has entered into a four year capital lease for furniture for
     the Company's service center.  The lease accrues interest at 7.05%.
     Principal and interest are payable monthly.  As of March 31, 1998, the
     principal amount owed by the Company was $268,000.  Interest expense
     recognized for this debt for the period ended March 31, 1998 was $5,400.

(7)  STOCK OPTION PLAN

     In 1998, stock options with respect to an aggregate of 232,500 shares of
     Common Stock have been granted to key employees, affiliates of the Company
     and directors at the fair market value at the date of grant.  The amount
     of shares granted in excess of the available shares and the granting of
     options to independent contractors and employees of affiliates of the
     Company are subject to shareholder approval at the Annual Meeting.  All
     employee and affiliate stock options vest one-third immediately, one-third
     in 1998 and one-third in 1999, and director stock options vest in 1998.
     All stock options expire 10 years from the date of grant.

(8)  SUBSEQUENT EVENTS

     As discussed in Note 4, the Company is in violation of certain financial
     covenants in agreements with certain of its lenders.  As of May 15, 1998,
     the lenders have not declared a default or accelerated the payment of the
     principal amount of the debt owed to them by the Company.  The Company is
     in discussions with its lenders to obtain waivers of those covenant
     violations.

     The Company has agreed to engage a back-up servicer to further ensure the
     continuity of servicing for its Servicing Portfolio.  The Company is in
     discussions with a financial services company to be the Company's back-up
     servicer.





                                       15
<PAGE>   16
                      NATIONAL AUTO FINANCE COMPANY, INC.
                   Notes to Consolidated Financial Statements
                                 March 31, 1998
                                  (unaudited)



     The Company also is in discussions with First Union to continue Loan
     financing availability under its Master Trust facility warehouse line.  As
     of May 15, 1998, the Company has continued to fund Loans under the Master
     Trust facility warehouse line.  The amount available under the Master
     Trust for purchase of Loans was $7.7 million as of May 15, 1998.
     Additionally, the Company and the automobile finance division of First
     Union ("First Union Auto Finance") have agreed to allow First Union Auto
     Finance up to and including May 15, 1998 to notify the Company of First
     Union Auto Finance's renewal or non-renewal of its referral agreement with
     the Company for an additional year.

     The Company is undergoing a restructuring of its operations, including,
     without limitation, the reduction of personnel, and expects to focus its
     originations in the areas of the highest geographic volume and continue
     originating loans pursuant to certain of its strategic alliances.  The
     Company also anticipates tightening its underwriting criteria, becoming
     more selective in the types of vehicles and customers that it will
     finance, and increasing its loan yields.  The Company is continuing to
     develop a revised business model reflective of these strategies and
     expects to announce in the near future additional steps to reposition its
     business.  The Company is currently reviewing several strategic options to
     expand the business of its service center.





                                       16
<PAGE>   17
                      NATIONAL AUTO FINANCE COMPANY, INC.
         Managements's Discussion and Analysis of Financial Condition
                          and Results of Operations
                                March 31, 1998



ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

   In April 1998, the Company announced that it would likely be restating its
financial statements for each of the first, second and third quarters of 1997.
The discussion below reflects the restated amounts for the first quarter of
1997.  Further information regarding the restatement is provided in Note 2 of
the Notes to the unaudited interim Consolidated Financial Statements contained
elsewhere herein.

   The following management's discussion and analysis provides information
regarding the Company's financial condition as of March 31, 1998 compared to
December 31, 1997 and its results of operations for the three month period
ended March 31, 1998 and the restated three month period ended March 31, 1997.
This management's discussion and analysis should be read in conjunction with
(i) the Company's Consolidated Financial Statements and the related notes
included elsewhere herein and (ii) the Company's Annual Report on Form 10-K
with respect to the fiscal year ended December 31, 1997.  The ratios and
percentages provided below are calculated using detailed financial information
contained in the Company's Financial Statements, the notes thereto and the
other financial data included elsewhere in this report.

SECURITIZATION ACTIVITIES

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

Revenues

      In January 1997, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities" ("SFAS No 125").  Since then, the
Company has undertaken a continuing process of refining the assumptions and
methodologies used to measure the fair value of its Retained Interest in
Securitizations based upon the historical performance of its Loan portfolio.
Specifically, the Company has increased the cumulative net loss estimate from
7% as of March 31, 1997 to 12.88% as of March 31, 1998 increased the discount
rate applied to estimated cash flows from the securitizations from 11% at March
31, 1997 to 14% at March 31, 1998 and increased assumptions related to levels
of cash required to be maintained in spead accounts to reflect anticipated
changes in such required amounts over time.  The increase in the cumulative net
loss estimate results primarily from an increase in default rates expected to
be experienced over the life of the Loans, lower expected recovery rates on the
underlying collateral and changes in prepayment speeds, compared to the rates
of such items estimated in earlier periods.

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

Distributions of Cash from Securitization

      When the Company securitizes Loans, it is required to establish and
maintain credit enhancements on a trust-specific basis to support the timely
payment of interest and principal on the notes issued to investors by such
securitization trusts, which credit enhancements include, among other things,
funding and maintaining the Cash Spread Accounts and maintaining the
Over-Collateralization Accounts.  The Cash Spread Accounts are funded through
initial cash deposits by the Company, plus a portion of the excess cash flows
from the Loans (that is, the difference between cash received by the


                                       17
<PAGE>   18
                      NATIONAL AUTO FINANCE COMPANY, INC.
         Managements's Discussion and Analysis of Financial Condition
                          and Results of Operations
                                March 31, 1998



relevant trust and its interest and principal payments on the asset-backed
securities and trust expenses).  Once the funds in the Cash Spread Accounts
meet specified levels (which may be increased if the performance of the relevant
Loan pool deteriorates), any subsequent excess cash flows thereafter will be
released to the Company on a monthly basis.  Any remaining cash in the Cash
Spread Accounts after the asset-backed securities have been paid in full also
will be released to the Company.  The amount of excess cash available for
distribution to the Company will be affected by the Servicing Portfolio's actual
loss and prepayment experience.  See Note 3 to the Financial Statements -
Retained Interest in Securitizations.

      During the three months ended March 31, 1998 and 1997, the following
activity took place with respect to securitizations:

<TABLE>
<CAPTION>
                                                                    March 31,               
                                                        --------------------------------
                                                           1998               1997          
                                                        -------------     --------------
                                                                             (restated)

                                                             (dollars in thousands)
<S>                                                     <C>                  <C>
Number of Loans purchased . . . . . . . . . . . .            4,087                 2,878
Principal balance of Loans purchased  . . . . . .       $   48,991           $    35,772
Principal amount of Loans funded (1)  . . . . . .       $   47,422           $    34,909
Securitization related income (loss)  . . . . . .       $       74           $     2,052
Servicing income  . . . . . . . . . . . . . . . .       $    1,272           $       537
</TABLE>

------------------------
(1)   Amount funded represents the price at which the Company purchases a Loan
      from a Dealer or Third-Party Originator (i.e., the amount actually paid
      to a Dealer or Third-Party Originator), calculated as the principal of
      the Loan purchased less the Dealer Discount.

RESULTS OF OPERATIONS

THREE MONTH PERIOD ENDED MARCH 31, 1998, COMPARED TO THE THREE MONTH PERIOD
ENDED MARCH 31, 1997.

Income from Operations

      The Company reported net loss of $5.2 million attributed to common
shareholders for the three month period ended March 31, 1998, compared to a net
loss of $6.2 million attributed to common shareholders for the three month
period ended March 31, 1997.

Securitization Related Income (Loss)

      The Company's Loan purchasing and servicing operations expanded
significantly during the three month period ended March 31, 1998 compared to
the three month period ended March 31, 1997.  The Company purchased 4,087
Loans, having a principal balance of $49.0 million, during the three month
period ended March 31, 1998, compared to 2,878 Loans, having a principal
balance of $35.8 million, for the three months ended March 31, 1997.  These
Loan purchases consisted of 2,823 Loans purchased from Dealers ($37.7 million
principal balance) and 1,264 Loans purchased from Third-Party Originators
($11.3 million principal balance) during the three month period ended March 31,
1998.  This compares to 2,117 Loans purchased from Dealers ($28.0 million
principal balance) and 761 Loans purchased from Third-Party Originators ($7.8
million principal balance) during the three month period ended March 31, 1997.
For the three month periods ended March 31, 1998 and 1997, the Company
recognized securitization related income of $74,000 and $2.0 million,
respectively.  Notwithstanding a 37% increase in the dollar volume of Loans
purchased during the three month period ended March 31, 1998 compared to the
three month period ended March 31, 1997, securitization income decreased due to
the increase in the cumulative net loss estimate from 7% as of March 31, 1997
to 12.88% as of March 31, 1998.  In addition, in the first quarter of 1998, the
Company was required to provide additional credit enhancements to the Master
Trust in the amount of $15.3 million and as part of the evaluation of the
Retained Interest in Securitizations, the cash deposits were discounted using a
rate of 14%, which reduced the securitization income reported for the first
quarter.





                                       18
<PAGE>   19
                      NATIONAL AUTO FINANCE COMPANY, INC.
         Managements's Discussion and Analysis of Financial Condition
                          and Results of Operations
                                March 31, 1998



      The Company's model used to calculate the fair value of Retained Interest
in Securitizations includes an amount equal to an estimate of cumulative net
losses to be experienced with respect to the Loans securitized.  Significant
changes in such cumulative net loss estimate will result in adjustments to the
carrying value of Retained Interest in Securitizations.

Servicing Income

      The Company receives a servicing fee in cash of approximately 4.0% of the
principal amount of the Loans sold to the Master Trust and 2.0% for the
principal amount of the Loans subsequently sold to the Permanent
Securitizations, which typically offsets actual servicing expenses incurred by
the Company.  This income is recognized as earned.  Servicing income for the
three month periods ended March 31, 1998 and 1997 was $1.3 million and
$537,000, respectively.  The growth in servicing income was attributable to the
increase in the size of the Servicing Portfolio.

Other Income

      Other income consists of interest income on cash investments and late
charges earned.  The other income for the three month periods ended March 31,
1998 and 1997 was $774,000 and $208,000, respectively.

Total Expenses

     The Company reported total expenses for the three month periods ended
March 31, 1998 and 1997 of $7.3 million and $4.0 million, respectively.  These
expenses consisted primarily of interest expense on long-term indebtedness
including the Company's senior subordinated notes, salaries and employee
benefits, direct Loan acquisition expenses and servicing expenses.  The
increase in expenses was due to the start-up and duplicative expenses
associated with the Company's transition from an outside servicer to in-house
servicing and the additional interest expense associated with the increased
debt of the Company.

      External servicing expenses for the three month periods ended March 31,
1998 and 1997 were $840,000 and $612,000, respectively. Servicing costs
consisted primarily of a monthly fee to an outside servicer for each active
Loan and the cost of vendor's single interest ("VSI") insurance maintained by
the Company.  Servicing fees paid to the Company's outside servicer for the
three month period ended March 31, 1998 and 1997 were $731,000 and $491,000,
respectively.  The increase in servicing expenses primarily reflected the
growth in the Servicing Portfolio.  The Company's Servicing Portfolio grew from
a $127.1 million Servicing Portfolio, representing 11,321 outstanding Loans as
of March 31, 1997, to a $251.1 million Servicing Portfolio, representing 23,597
outstanding Loans, as of March 31, 1998.  The Company will continue to pay its
outside servicer fees during the period of transition to the complete internal
servicing and MIS operations, which is expected to be completed later in the
second quarter of 1998.  Thereafter, servicing expenses will decline but will
be partially replaced by internal servicing expenses.

      The Company has assumed responsibility for collecting all of its Loans,
and anticipates assuming responsibility for all other servicing of its Loans
and MIS operations late in the second quarter of 1998.  Internal servicing
expenses consisted primarily of salaries and other operating expenses totaling
$1.5 million for the three month period ended March 31, 1998.  In addition, the
Company capitalized $41,000 of start-up costs during the three month period 
ended March 31, 1998.  The Company commenced operations in its own internal
servicing center during July 1997 and had hired 102 employees through March 31,
1998. The internal servicing expenses will continue to grow as the transition to
in-house servicing continues.

      Interest expense for the three month periods ended March 31, 1998 and
1997 was $1.5 million and $415,000, respectively.  The increase in interest
expense resulted from the increases in the long-term debt balances of the
Company.

      Salaries and employee benefits for the three month periods ended March
31, 1998 and 1997 were approximately $1.6 million and $1.3 million,
respectively.  The increase resulted from the hiring of additional senior
management.  These expenses consisted primarily of salaries and wages,
performance incentives, employee benefits and payroll taxes.

      Direct Loan acquisition expenses for the three month periods ended March
31, 1998 and 1997 were $651,000 and $701,000, respectively.  These expenses
consisted primarily of Dealer incentives, fees paid to Strategic Alliance
partners, broker fees, credit information fees and telephone expenses.  The
expenses were relatively consistent for the three month periods ended March 31,
1998 and 1997 despite volume increases in 1998 due to decreased rates obtained
on credit reports and telephone charges.





                                       19
<PAGE>   20
                      NATIONAL AUTO FINANCE COMPANY, INC.
         Managements's Discussion and Analysis of Financial Condition
                          and Results of Operations
                                March 31, 1998



      Other operating expenses for the three month periods ended March 31, 1998
and 1997 were $937,000 and $753,000, respectively.  These expenses consisted
primarily of telecommunications, travel, professional fees, insurance expenses
and MIS expenses.  The increase in other operating expenses primarily reflects
the growth in the number of Loans purchased and serviced by the Company, the
hiring of additional personnel and other costs associated with the growth of
the Company.

LOAN LOSS AND DELINQUENCY EXPERIENCE

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

<TABLE>
<CAPTION>
                                                                 As of March 31,   
                                                     ------------------------------
                                                            1998          1997     
                                                     -------------  ---------------
                                                        (dollars in thousands)
<S>                                                 <C>             <C>
Average Servicing Portfolio during period . . . .    $     237,864  $     114,247
Gross charge-offs . . . . . . . . . . . . . . . .            5,411          3,575
Liquidation proceeds from repossessed assets  . .            2,357          1,711
                                                       -----------    -----------
Net charge-offs . . . . . . . . . . . . . . . . .    $       3,054  $       1,864
                                                       ===========    ===========
Net charge-offs as a percentage of average Servicing
    Portfolio . . . . . . . . . . . . . . . . .              1.28%          1.63%
                                                       ===========    ===========
</TABLE>

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

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

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





                                       20
<PAGE>   21
                      NATIONAL AUTO FINANCE COMPANY, INC.
         Managements's Discussion and Analysis of Financial Condition
                          and Results of Operations
                                March 31, 1998



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

<TABLE>
<CAPTION>
                                                              As of March 31,  
                                                     --------------------------
                                                         1998           1997   
                                                     -----------    -----------
                                                        (dollars in thousands)
<S>                                                  <C>            <C>
Period of delinquency:
  31 to 60 days   . . . . . . . . . . . . . . . .    $    12,481    $     6,816
  61 to 90 days   . . . . . . . . . . . . . . . .          2,624          1,500
  91 days or more   . . . . . . . . . . . . . . .          3,488          1,854
                                                       ---------      ---------
Total delinquencies . . . . . . . . . . . . . . .    $    18,593    $    10,170
                                                       =========      =========
Total delinquencies as a percentage of the
  Servicing Portfolio   . . . . . . . . . . . . .          7.40%          8.00%
Principal balance of Loans related to repossession
  inventory   . . . . . . . . . . . . . . . . . .    $     5,839    $     2,579
Repossession inventory as a percentage of the
  Servicing Portfolio   . . . . . . . . . . . . .          2.33%          2.03%
</TABLE>

      Management believes that the payment practices of Non-Prime Consumers are
partially a function of seasonality.  Because Non-Prime Consumers typically
have low disposable incomes, they frequently tend to fall behind in payments on
their Loans during the early winter months, when the holiday season generates
demands for their limited disposable income and when these borrowers encounter
weather-related work slow-downs.  As a result, absent unforeseen circumstances,
management expects delinquencies to be highest in the first calendar quarter
and the fourth calendar quarter of each year.  Generally, there is a 60 to
120-day lag between initial delinquency and charge-off.

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





                                       21
<PAGE>   22
                      NATIONAL AUTO FINANCE COMPANY, INC.
          Managements's Discussion and Analysis of Financial Condition
                           and Results of Operations
                                 March 31, 1998



   The following table summarizes the vintage static pools of the Company's
Servicing Portfolio for all Loans purchased by the Company from inception
through the period ending December 31, 1997, and includes loss data through
March 31, 1998:

<TABLE>
<CAPTION>
      4Q       1Q       2Q      3Q       4Q       1Q       2Q      3Q       4Q       1Q      2Q       3Q       4Q
     1994     1995     1995    1995     1995     1996     1996    1996     1996     1997    1997     1997     1997
     ----     ----     ----    ----     ----     ----     ----    ----     ----     ----    ----     ----     ----
<S>  <C>      <C>      <C>     <C>       <C>      <C>      <C>     <C>      <C>      <C>     <C>      <C>      <C>
 1    0.00%    0.00%    0.00%   0.00%    0.00%    0.00%    0.00%   0.00%    0.00%    0.00%   0.00%    0.00%    0.00%
 2    0.00%    0.00%    0.00%   0.00%    0.00%    0.00%    0.00%   0.00%    0.00%    0.00%   0.00%    0.00%    0.00%
 3    0.00%    0.00%    0.00%   0.00%    0.05%    0.00%    0.00%   0.04%    0.00%    0.00%   0.00%    0.02%    0.00%
 4    0.00%    0.00%    0.00%   0.03%    0.17%    0.00%    0.00%   0.04%    0.01%    0.02%   0.17%    0.02%    0.00%
 5    0.00%    0.07%    0.00%   0.19%    0.21%    0.10%    0.10%   0.16%    0.00%    0.06%   0.43%    0.07%    0.06%
 6    0.05%    0.14%    0.27%   0.43%    0.70%    0.39%    0.31%   0.45%    0.25%    0.23%   0.93%    0.22%    0.23%
 7    0.05%    0.24%    0.67%   0.88%    0.96%    0.60%    0.63%   0.79%    0.61%    0.58%   1.40%    0.41%
 8    0.31%    0.86%    1.42%   1.24%    1.05%    0.80%    1.14%   1.06%    1.21%    1.19%   1.89%    0.79%
 9    0.47%    1.34%    1.98%   2.18%    1.57%    1.38%    1.73%   1.92%    1.89%    1.90%   2.58%    1.25%
10    0.51%    1.70%    2.40%   2.35%    2.28%    1.81%    2.70%   2.59%    2.55%    2.34%   3.26%
11    1.08%    1.73%    2.62%   2.71%    2.40%    2.00%    3.29%   3.36%    3.40%    2.84%   3.51%
12    1.36%    2.52%    3.14%   3.11%    3.08%    2.43%    4.34%   3.65%    3.69%    3.45%   4.31%
13    1.75%    3.04%    3.37%   3.60%    3.48%    3.35%    5.19%   4.47%    4.02%    3.95%
14    1.72%    3.39%    3.71%   3.58%    3.69%    3.60%    5.58%   5.04%    4.53%    4.21%
15    3.12%    3.90%    3.99%   4.13%    4.24%    4.42%    6.00%   5.38%    5.12%    4.86%
16    3.21%    4.20%    4.27%   4.60%    4.58%    4.71%    6.50%   5.95%    5.49%
17    3.80%    4.52%    4.49%   4.98%    5.36%    5.38%    6.89%   6.37%    5.89%
18    4.45%    4.70%    5.01%   5.14%    5.52%    5.80%    7.19%   6.84%    6.48%
19    4.55%    4.94%    5.35%   5.49%    6.09%    6.68%    7.52%   7.32%
20    4.91%    5.18%    5.75%   5.96%    6.43%    6.95%    7.85%   8.13%
21    4.91%    5.77%    6.13%   6.46%    6.65%    7.16%    8.25%   8.58%
22    5.05%    5.75%    6.84%   6.76%    7.10%    7.60%    8.47%
23    5.05%    6.24%    7.44%   7.02%    7.51%    8.09%    9.35%
24    5.79%    6.34%    7.75%   7.10%    8.06%    8.24%    9.81%
25    5.78%    7.01%    8.28%   7.78%    8.34%    8.32%
26    6.20%    7.30%    8.52%   8.37%    8.62%    8.71%
27    6.80%    7.65%    8.66%   8.63%    8.82%    9.12%
28    7.15%    8.00%    9.08%   8.71%    8.97%
29    7.49%    9.02%    9.31%   8.86%    9.30%
30    8.06%    9.15%    9.36%   8.92%    9.98%
31    8.23%    9.73%    9.57%   9.06%
32    9.07%    9.90%    9.60%   9.81%
33    9.07%   10.08%    9.89%  10.14%
34    9.61%   10.07%    9.96%
35    9.89%   10.28%   10.33%
36   10.38%   10.59%   10.58%
37   11.44%   10.81%
38   11.48%   11.15%
39   11.81%   11.52%
40   11.84%
41   11.87%
42   12.22%
</TABLE>





                                       22
<PAGE>   23
                      NATIONAL AUTO FINANCE COMPANY, INC.
         Managements's Discussion and Analysis of Financial Condition
                          and Results of Operations
                                March 31, 1998




LIQUIDITY AND CAPITAL RESOURCES

General

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

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

      Net cash used in operating activities increased by $12.3 million from
$6.3 million for the three month period ended March 31, 1997 to $18.6 million
for the three month period ended March 31, 1998, principally due to increased
operating expenses resulting from the growth of the Company, the change in the
credit enhancement requirements of the Company's securitization facilities and
the increase in the volume of Loans purchased.

      Net cash used in investing activities were relatively consistent for the
three month periods ended March 31, 1998 and 1997.

      Net cash provided by financing activities increased by $6.8 million from
$12.4 million for the three month period ended March 31, 1997 to $19.2 million
for the three month period ended March 31, 1998.  Such increase was the result
of the proceeds received from the Company's sale of the Senior Subordinated
Notes.

      The Company is required to maintain a minimum equity position in the
Revolving Securitization of 14.0% of the net serviced receivables or 2.5 times
net losses, whichever is greater.  This equity currently consists of cash
invested by the Company and over-collateralization in the form of Dealer
Discounts related to the principal balance of Loans.  As of March 31, 1998, the
Company had a 20.5% equity investment in the Revolving Securitization.

      As of March 31, 1998, the Company retained approximately $20.8 million of
ESRs, approximately $13.2 million of Cash Spread Accounts and approximately
$11.1 million of Over-Collateralization Accounts, which combined represent the
$45.1 million shown on the balance sheet as Retained Interest in
Securitizations, representing 56% of the total assets of the Company.  The
value of these assets would be reduced in the event of a future material
increase in the Loan loss or prepayment experience relative to the amounts
previously estimated by the Company.

      As of March 31, 1998, the principal amount owed by the Company on the
Junior Subordinated Notes was approximately $2 million (including $39,000 of
accrued interest), which bear interest at an annual rate of 8.0%, and the
principal amount owed by the Company on the Senior Subordinated Notes was $60.0
million.  The Senior Subordinated Notes, which mature on December 2004, bear
interest at an annual rate of 11.875% for the first three years, and increase
thereafter.  See notes 4 and 5 for further discussions of the notes.

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





                                       23
<PAGE>   24
                      NATIONAL AUTO FINANCE COMPANY, INC.
         Managements's Discussion and Analysis of Financial Condition
                          and Results of Operations
                                March 31, 1998



      Each Permanent Securitization trust has certain portfolio performance
tests relating to levels of delinquency, defaults and net losses on the Loans
in such trust ("Maintenance Tests").  Portfolio performance tests require that
the Loan portfolio of each Permanent Securitization trust have:  (i) an average
delinquency rate less than a specified percentage; (ii) a cumulative default
rate less than specified percentages that vary based on the aging of the
relevant trust's Loan pool; and (iii) a cumulative net loss less than specified
percentages that vary based on the aging of the relevant trust's Loan pool.  If
any Permanent Securitization Loan portfolio fails to satisfy any of these
tests, the amount of cash required to be retained in the Cash Spread Account
related to such securitization trust will be increased to an amount generally
equal to 7.0% of the then outstanding balance held by the securitization trust.

     Upon the occurrence of a Permanent Securitization failing to meet
portfolio performance tests of the nature described above but at significantly
higher levels (an Insurance Agreement Event of Default), the Company will be in
default under its insurance agreements with FSA.  Upon an insurance Agreement
Event of Default, FSA may: (i) permanently suspend distributions of cash flow
to the Company from the related securitization trust and all other FSA-insured
trusts until the asset-backed securities have been paid in full; (ii) capture
all excess cash flows from performing FSA-insured trusts; (iii) increase its
premiums; and (iv) replace the Company as servicer with respect to all
FSA-insured trusts.  In April 1997, the Permanent Securitization trust formed
in November 1995 experienced an Insurance Agreement Event of Default. In
October 1997, the Company entered into an agreement with FSA that:  (i)
permanently waived the April 1997 Insurance Agreement Event of Default; (ii)
modified the portfolio performance tests described above to increase the
thresholds through June 1998 for the Permanent Securitization trusts formed in
November 1995 and 1996 (temporary revisions); (iii) increased the amount
required to be retained in the Spread Account related to the November 1995 and
1996 trust to an amount generally equal to 11% of the then outstanding balance
held by the securitization trust if the modified portfolio performance tests
are not met; (iv) required the Company to cause the Spread Account for each
FSA-insured securitization trust to be cross-collateralized to the Spread
Accounts established in connection with each of its other FSA-insured
securitization trusts; (v) permitted the Company to enter into the $10.0
million BankBoston Agreement; (vi) provided that FSA would consider providing
credit enhancement for the Company's next Permanent Securitization; and (vii)
provided for the issuance of 100,000 shares of Common Stock to FSA.  In
consideration for such agreement, the Company issued 100,000 shares of Common
Stock to FSA and reduced securitization related income by $700,000 in 1997.  As
a result of the aforementioned cross-collateralization, the excess cash flow
from a performing FSA-insured trust may be required to be used to support
negative cash flow from, or to replenish a deficient Spread Account in
connection with, a non-performing FSA-insured securitization trust, thereby
further restricting excess cash flow available to the Company.  If excess cash
flow from all FSA-insured securitization trusts is not sufficient to replenish
all these Spread Accounts, no cash flow would be available to the Company for
that month. The Company's right to service the Loans sold in FSA-insured
securitizations is generally subject to the discretion of FSA.  Accordingly,
there can be no assurance that the Company will continue as servicer for such
Loans and receive related servicing fees.  Additionally, there can be no
assurance that there will not be additional Insurance Agreement Events of
Default in the future, or that, if such events of default occur, waivers will be
available.  If the Company does not meet such requirements in 1998, the carrying
value of the Company's Retained Interest in Securitizations would be materially
impacted in a negative manner.

      In 1998, certain modified portfolio performance tests were not met with
respect to the Permanent Securitization trusts formed in November 1995,
November 1996 and July 1997, resulting in the Company being required to retain
an additional amount of $3.1 million over the $2.1 million previously required
to be retained in the Cash Spread Accounts as of December 31, 1997 related to
such Permanent Securitization trusts until the violation of such modified
performance tests are cured.  As of April 30, 1998, a total of $3.8 million of
the total $5.2 million in increased spread account funding requirements had
been accumulated in the Cash Spread Accounts of such trusts, in lieu of being
distributed to the Company.

      The following is a table showing the portfolio performance tests by Trust
as of March 31, 1998:

<TABLE>
<CAPTION>
                       Delinquency Test                     Default Test                   Loss Test           
                  -----------------------------    ----------------------------  -------------------------------
                  Actual  Maintenance Insurance    Actual Maintenance Insurance  Actual  Maintenance   Insurance
                  ------  ----------- ---------    ------ ----------- ---------  ------  -----------   ---------
  <S>              <C>        <C>       <C>        <C>       <C>         <C>      <C>        <C>          <C>   
  95-1              9.49%     9.50%     12.00%     16.57%    20.00%      25.00%   9.08%      10.50%       12.00%
  96-1             10.74      9.75      12.00      21.53     20.00       25.00    8.71       10.00        12.00 
  97-1              8.51      8.25      11.00      21.37     18.00       25.00    9.61        8.00        11.00 
  98-1              5.09      8.25      11.00       7.77     18.00       25.00    0.22        8.00        11.00 
</TABLE>





                                       24
<PAGE>   25
                      NATIONAL AUTO FINANCE COMPANY, INC.
         Managements's Discussion and Analysis of Financial Condition
                          and Results of Operations
                                March 31, 1998



     The modified performance test levels for the 95-1 Trust will decrease in
June 1998 to:  (i) 8.25% for the delinquency maintenance test and to 11% for
the delinquency insurance test; (ii) 14% for the default maintenance test and
to 17% for the default insurance test; and (iii) 8% for the loss maintenance
test and to 10% for the loss insurance test.  The modified performance test
levels for the 96-1 Trust will decrease in June 1998 to:  (i) 8.25% for the
delinquency maintenance test and to 11% for the delinquency insurance test;
(ii) to 14% in July 1998 for the default maintenance test and to 17% for the
default insurance test; and (iii) 6% in July 1998 for the loss maintenance test
and to 8% for the loss insurance test.

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

     The Company is in violation of the Minimum Consolidated Net Worth and
Adjusted Interest Expense covenants contained in the December 1997 and March
1998 Securities Purchase Agreement pursuant to which it issued $60,000,000
aggregate principal amount of Senior Subordinated Notes.  The Minimum
Consolidated Net Worth covenant requires that the Company maintain Consolidated
Net Worth (as defined) of not less than (a) $25,890,000 plus (b) on a
cumulative basis commencing with the first fiscal quarter ending March 31,
1998, 50% of net income (if positive) for each fiscal quarter plus (c) 100% of
the net proceeds from any public offering or private placement of common stock.
The Adjusted Interest Expense covenant requires generally that the sum of the
Company's Net Income (as defined), Consolidated Total Interest Expense (as
defined) and income and franchise taxes divided by its Consolidated Total
Interest Expense (as defined) for each period of four fiscal quarters ending
December 31, 1997 and thereafter be at least 1.4:1.  The Company is in
discussions with the lenders under such debt agreements to obtain waivers of
the breach of such covenant violations.  If such waivers are not obtained, the
holders of the indebtedness represented thereby may declare a default and
accelerate the payment of the principal amount of such indebtedness.

     At March 31, 1998, the Company was in violation of the BankBoston
Agreement's Minimum Quarterly Net Income and Minimum Debt Service Coverage
Covenants.  The Company has repaid the remaining balance in April 1998 and does
not intend to borrow in the future.

      The Company experienced an increase in the use of cash during the three 
month period ended March 31, 1998 compared to the three month period ended March
31, 1997, due, in large part, to four factors:  (i) an increase in the volume of
Loans purchased from Dealers; (ii) a higher volume of Loans purchased from
Third-Party Originators; (iii); the corresponding overlap of costs between the
Company's internal servicing and its outside servicer; and (iv) a change in the
credit support requirements of the Company's other securitization facilities,
which has resulted in, and may continue in the future to result in, additional
capital of the Company being maintained in the spread accounts of its Permanent
Securitizations.

      The Company's business requires substantial cash to support the funding
of Cash Spread Accounts for its securitizations, issuance costs of its asset
securitizations, operating expenses, tax payments, debt service and other cash
requirements.  These cash requirements increase as the number of Loans
purchased and serviced by the Company increase.  Historically, the Company has
operated on a negative operating cash flow basis and its negative operating
cash flow is expected to continue for the foreseeable future.  The Company has
funded its negative operating cash flows principally through borrowings under
its secured financing facilities, issuances of subordinated debt and sales of
equity securities.  The Company believes cash currently on hand should be
sufficient to meet the Company's cash requirements and to fund its operations
through the third quarter of 1998, assuming the Company completes regular
securitizations during that period.  Thereafter, the Company will be required
to issue additional debt or equity, which could dilute the interests of
stockholders of the Company.  There can be no assurance that the Company will
have access to the capital markets in the future for debt or equity issuances
or for securitizations, or that financing through borrowings or other means
will be available on terms acceptable to the Company.  The Company's inability
to access the capital markets or obtain financing on acceptable terms could
have a material adverse effect on the Company's financial condition, results of
operations and cash flows.

INFLATION

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





                                       25
<PAGE>   26



PART II   Other Information


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

<TABLE>
<CAPTION>
     a) Exhibits

Number           Description                       Method of Filing
---------        -----------                       ----------------
  <S>            <C>                               <C>
  11             Computation of Earnings           Filed with this document
                 Per Common Share
  27             Financial Data Schedule           Filed with this document
</TABLE>

     b) Reports on Form 8-K

     On January 26, 1998, the Company filed a Form 8-K announcing that it
     completed a $93.6 million securitization of its motor vehicle retail
     installment Loans on January 20, 1998.

     On February 4, 1998, the Company filed a Form 8-K announcing the
     appointment of Joseph P. Donlan and David W. Young to the Company's Board
     of Directors.

     On March 5, 1998, the Company filed a Form 8-K announcing several changes
     in the Company's Senior Management.

     On March 19, 1998, the Company filed a Form 8-K announcing that:  (i) the
     Company has signed a referral agreement with U.S. Bank, N.A.; and (2) the
     Company's independent auditor is continuing to review emerging issues
     under Statement of Financial Accounting Standards No. 125 that may affect
     the Company's accounting policies and the related valuation of certain of
     the Company's securitized assets.





                                       26
<PAGE>   27
                                   SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                   NATIONAL AUTO FINANCE COMPANY, INC.

Date:  May 15, 1998                 /s/ Keith B. Stein
                                    -----------------------------------------
                                    Keith B. Stein
                                    Vice Chairman, Chief Financial Officer 
                                       and Treasurer





                                       27
<PAGE>   28
                                 EXHIBIT INDEX


<TABLE>
<CAPTION>
EXHIBIT
NUMBER                    DESCRIPTION
---------                 -----------
  <S>                     <C> <C>
  11                      --  Computation of Earnings Per Common Share

  27                      --  Financial Data Schedule
</TABLE>





                                       28