<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 June 30, 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
August 14, 1998.

<PAGE>   2

                       NATIONAL AUTO FINANCE COMPANY, INC.

                               INDEX TO FORM 10-Q

<TABLE>
<CAPTION>
                                                                                                         PAGE
                                                                                                         ----
<S>             <C>                                                                                      <C>
PART 1. FINANCIAL INFORMATION
     Item 1.    Financial Statements (unaudited)........................................................   4
                  Balance Sheets:
                    June 30, 1998 and December 31, 1997.................................................   4
                  Statements of Operations:
                    Three and Six Months Ended June 30, 1998 and 1997...................................   5
                  Statement of Stockholders' Equity as of June 30, 1998 and 1997........................   6
                  Statements of Cash Flows:
                    Six Months Ended June 30, 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........................................................  27
     SIGNATURES.........................................................................................  28
     EXHIBIT INDEX......................................................................................  29
       Exhibit 11.    Computation of Earnings Per Common Share..........................................  30
       Exhibit 27.    Financial Data Schedule...........................................................  31
</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," "intend," "foresee," "expected,"
"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, competitive and regulatory
factors, and changes in generally accepted accounting principles could affect
the Company's actual and/or reported financial performance and could cause the
Company's actual and/or reported 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.
                                 Balance Sheets
                       June 30, 1998 and December 31, 1997
                             (dollars in thousands)


<TABLE>
<CAPTION>
                                                                              June 30,        
                                                                                1998          December 31,
                                                                            (unaudited)           1997
                                                                            ------------      ------------
<S>                                                                         <C>               <C>         
ASSETS:
Cash and cash equivalents                                                   $     15,167      $     26,467
Retained interest in securitizations, at fair value                               51,427            31,569
Furniture, fixtures and equipment, net                                             3,667             2,262
Deferred financing costs                                                           3,020             2,539
Related party receivables                                                             --               155
Other assets                                                                         946             1,883
                                                                            ------------      ------------
    Total assets                                                            $     74,227      $     64,875
                                                                            ============      ============

LIABILITIES:
Accounts payable and accrued expenses                                       $      2,158      $      3,260
Accrued interest payable-related parties                                              39                39
Accrued interest payable-senior subordinated notes                                    --               132
Accrued interest payable-notes                                                        --                50
Junior subordinated notes-related parties                                          1,940             1,940
Senior subordinated notes                                                         53,043            34,546
Notes payable                                                                      1,251             1,614
                                                                            ------------      ------------
    Total liabilities                                                             58,431            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                                                                   36,341            34,417
Accumulated deficit                                                              (22,971)          (13,549)
                                                                            ------------      ------------
    Total stockholders' equity                                                    13,460            20,958
                                                                            ------------      ------------
    Total liabilities, mandatorily redeemable preferred stock and
      stockholders' equity                                                  $     74,227      $     64,875
                                                                            ============      ============
</TABLE>


See accompanying notes to the financial statements.


                                       4
<PAGE>   5

                       NATIONAL AUTO FINANCE COMPANY, INC.
                      Statements of Operations (unaudited)
            For the Three and Six Months Ended June 30, 1998 and 1997
                     (in thousands, except per share data)


<TABLE>
<CAPTION>
                                                              Three Months Ended June 30,         Six Months Ended June 30,
                                                              ---------------------------         --------------------------
                                                                1998               1997             1998              1997
                                                              ---------          --------         --------          --------
                                                                                (Restated)                         (Restated)
<S>                                                            <C>               <C>              <C>               <C>     
REVENUE:
   Securitization related income                               $  1,380          $  4,119         $  1,454          $  6,171
   Servicing income                                               1,643               838            2,915             1,375
   Interest income                                                  599               202            1,295               369
   Other income                                                      78                93              156               134
                                                               --------          --------         --------          --------
     Total revenue                                                3,700             5,252            5,820             8,049
                                                               --------          --------         --------          --------

EXPENSES:
   External servicing expenses                                    1,221               763            2,685             1,375
   Internal servicing expenses                                    1,105                --            1,945                --
   Interest expense                                               2,112               345            3,643               760
   Salaries and employee benefits                                 1,659             1,671            3,302             2,995
   Direct loan acquisition expenses                                 573               865            1,223             1,566
   Depreciation and amortization                                    232               214              419               393
   Other operating expenses                                       1,088             1,069            2,025             1,822
                                                               --------          --------         --------          --------
     Total expenses                                               7,990             4,927           15,242             8,911
                                                               --------          --------         --------          --------
Income (Loss) before income taxes                                (4,290)              325           (9,422)             (862)
Income taxes (benefit)                                               --               125               --              (332)
                                                               --------          --------         --------          --------
    Net income (loss) before taxes from reorganization
      of partnership                                             (4,290)              200           (9,422)             (530)
                                                               --------          --------         --------          --------
Income taxes from reorganization of partnership                      --                --               --             5,416
                                                               --------          --------         --------          --------
    Net income (loss)                                            (4,290)              200           (9,422)           (5,946)
Preferred stock dividends                                            40                41               80                67
                                                               --------          --------         --------          --------
Income (Loss) attributed to common shareholders                $ (4,330)         $    159           (9,502)           (6,013)
                                                               ========          ========         ========          ========

PER SHARE DATA:
Earnings (Loss) per common share - basic                       $  (0.48)         $   0.02            (1.05)            (0.86)
Earnings (Loss) per common share - diluted                     $  (0.48)         $   0.02            (1.05)            (0.86)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic                                                             9,031             7,026            9,031             6,976
Diluted                                                           9,031             7,026            9,031             6,976
</TABLE>


See accompanying notes to the financial statements.


                                       5
<PAGE>   6

                       NATIONAL AUTO FINANCE COMPANY, INC.
                 Statements of Stockholders' Equity (unaudited)
                     For the Six Months Ended June 30, 1998
                             (dollars in thousands)


<TABLE>
<CAPTION>
                                                          Common         Paid-in      Accumulated
                                                           Stock         Capital        Deficit         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              --            (80)            --            (80)

Net loss                                                         --             --         (9,422)        (9,422)
                                                        -----------    -----------    -----------    -----------

Balance as of June 30, 1998                             $        90    $    36,341    $   (22,971)   $    13,460
                                                        ===========    ===========    ===========    ===========
</TABLE>


See accompanying notes to the financial statements.


                                       6
<PAGE>   7

                       NATIONAL AUTO FINANCE COMPANY, INC.
                Consolidated Statements of Cash Flows (unaudited)
                 For the Six Months Ended June 30, 1998 and 1997
                             (dollars in thousands)


<TABLE>
<CAPTION>
                                                                          Six Months Ended
                                                                              June 30,
                                                                        --------------------
                                                                          1998        1997
                                                                        --------    -------- 
                                                                                   (Restated)
<S>                                                                     <C>         <C>      
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss)                                                       $ (9,422)   $ (5,946)
  Adjustments to reconcile net income (loss) to net cash used in
   operating activities:
   Securitization related income                                          (1,454)     (6,171)
   Depreciation expense                                                      318          90
   Provision for credit losses                                                --         313
   Purchases of loans held for sale                                      (81,080)    (77,509)
   Proceeds from transfer of loans to Master Trust                        81,080      73,045
   Cash flows from Retained Interest released to Company                   3,679       4,941
   Cash deposits to Spread Accounts                                      (22,082)     (6,819)
   Amortization and write-off of deferred financing costs                    276          74
   Amortization of deferred placement costs                                   --         163
   Amortization of warrants                                                  500          --
   Changes in other assets and liabilities:
     Other assets                                                          1,091      (1,625)
     Accounts payable and accrued expenses                                (1,103)        774
     Accrued interest payable-related parties                                 --        (105)
     Accrued interest payable-senior subordinated notes
       and other notes                                                      (181)       (139)
     Deferred income taxes                                                    --       5,084
                                                                        --------    --------
Net cash used in operating activities                                    (28,378)    (13,830)
CASH FLOW FROM INVESTING ACTIVITIES:
   Fixed assets purchased                                                 (1,722)       (593)
                                                                        --------    --------
Net cash used in investing activities                                     (1,722)       (593)
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from senior subordinated notes                                19,243          --
   Principal payments on junior subordinated notes-related parties            --      (5,206)
   Principal payments on notes                                              (363)         --
   Proceeds from initial public offering                                      --      17,615
   Due to National Auto Finance Corporation                                   --        (178)
   Payment of preferred stock dividends                                      (80)        (27)
                                                                        --------    --------
Net cash provided by financing activities                                 18,800      12,204
                                                                        --------    --------
Net decrease in cash and cash equivalents                                (11,300)     (2,219)
Cash and cash equivalents at beginning of period                          26,467       5,066
                                                                        --------    --------
Cash and cash equivalents at end of period                              $ 15,167    $  2,847
                                                                        ========    ========
SUPPLEMENTAL CASH FLOW INFORMATION:
   Cash paid for interest                                               $  3,323    $    835
                                                                        ========    ========
</TABLE>


                                       7
<PAGE>   8
<TABLE>
<CAPTION>
                                                                                        Six Months Ended
                                                                                           June 30,
                                                                                        ----------------
                                                                                         1998      1997
                                                                                        ------    ------
                                                                                                (Restated)
<S>                                                                                     <C>     <C>   
NON-CASH FINANCING ACTIVITIES:
   Offering costs deferred in 1996 transferred to paid-in capital in 1997               $   --    $  775
   Accrued mandatorily redeemable preferred stock dividends                                 80        41
   Conversion of deferred interest on senior subordinated debt to common
     stock and paid-in capital                                                              --       169
   Conversion of predecessor entity capital to mandatorily redeemable preferred stock       --     2,295
   Conversion of predecessor entity capital to common stock and
     paid-in capital                                                                        --     7,225
   Deferred taxes from reorganization considered reduction in paid-in capital               --     5,416
   Income earned in 1997 prior to reorganization included in
     paid-in capital                                                                        --       526
   Issuance of 593,671 warrants in conjunction with senior subordinated
     notes considered paid-in-capital                                                    2,004        --
</TABLE>


See accompanying notes to the financial statements.


                                       8
<PAGE>   9

                       NATIONAL AUTO FINANCE COMPANY, INC.
                          Notes to Financial Statements
                                  June 30, 1998
                                   (unaudited)


(1)   BASIS OF PRESENTATION

      During July 1998, National Auto Finance Company, Inc. (the "Company")
      restated its financial statements for each of the first, second and third
      quarters of 1997. The comparative amounts included herein reflect the
      restated amounts for 1997. Further information regarding the restatement
      is provided in Note 2 below.

      The accompanying unaudited interim financial statements at June 30, 1998
      and December 31, 1997 and for the three and six months ended June 30, 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

      As discussed above, the Company has restated its quarterly consolidated
      financial statements for 1997. The restatement resulted from applying the
      Company's December 31, 1997 model pursuant to Statement of Financial
      Standards No. 125 ("SFAS No. 125") relating to the calculation of
      securitization income and the related valuation of the Company's "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 June 30,
           1997 include:

           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)    Accruing of certain anticipated costs associated with future
                 securitizations; and

           4)    Increasing the cumulative net loss rate from 7% to 9%.


                                       9
<PAGE>   10
                       NATIONAL AUTO FINANCE COMPANY, INC.
                          Notes to Financial Statements
                                  June 30, 1998
                                   (unaudited)

                            Balance Sheet (Unaudited)
                               As of June 30, 1997
                             (dollars in thousands)


<TABLE>
<CAPTION>
                                                                          Reported  As Adjusted
                                                                          --------  -----------
<S>                                                                       <C>       <C>     
ASSETS:
Cash and cash equivalents                                                 $  2,847   $  2,847
Retained interest in securitizations, at fair value                         35,922     31,353
Finance receivables, net                                                     4,228      4,228
Furniture, fixtures and equipment, net of depreciation                         690      1,016
Deferred financing costs                                                     1,000      1,000
Other assets                                                                 1,215      1,992
                                                                          --------   --------
    Total assets                                                          $ 45,902   $ 42,436
                                                                          ========   ========

LIABILITIES:
Accounts payable and accrued expenses                                     $  1,813   $  2,545
Accrued interest payable-related parties                                        39         39
Accrued interest payable-senior subordinated notes                             200        200
Junior subordinated notes-related parties                                    2,012      2,012
Senior subordinated notes                                                   12,000     12,000
Deferred income taxes                                                        5,788      5,084
                                                                          --------   --------
    Total liabilities                                                       21,852     21,880
                                                                          --------   --------

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      2,335

STOCKHOLDERS' EQUITY:
Common stock -$0.01 par value; 20,000,000 shares authorized;
    7,026,000 shares outstanding                                                70         70
Paid-in-capital                                                             20,220     19,207
Retained earnings (accumulated deficit)                                      1,465     (1,056)
                                                                          --------   --------
    Total stockholders' equity                                              21,755     18,221
                                                                          --------   --------
    Total liabilities, mandatorily redeemable preferred stock and
      stockholders' equity                                                $ 45,902   $ 42,436
                                                                          ========   ========
</TABLE>


                                       10
<PAGE>   11
                       NATIONAL AUTO FINANCE COMPANY, INC.
                          Notes to Financial Statements
                                  June 30, 1998
                                   (unaudited)

                            Statements of Operations
                For the Three and Six Months Ended June 30, 1997
                      (in thousands, except per share data)


<TABLE>
<CAPTION>
                                                             Three Months Ended           Six Months Ended
                                                                June 30, 1997              June 30, 1997
                                                         -------------------------   --------------------------
                                                          Reported     As Adjusted    Reported      As Adjusted
                                                         -----------   -----------   -----------    -----------
<S>                                                      <C>           <C>           <C>            <C>        
REVENUE:
   Securitization related income                         $     5,799   $     4,119   $    10,786    $     6,171
   Servicing income                                              468           838           862          1,375
   Interest income                                               202           202           369            369
   Other income                                                   93            93           134            134
                                                         -----------   -----------   -----------    -----------
     Total revenue                                             6,562         5,252        12,151          8,049
                                                         ===========   ===========   ===========    ===========

EXPENSES:
   Servicing expenses                                            763           763         1,375          1,375
   Interest expense                                              345           345           760            760
   Salaries and employee benefits                              1,622         1,671         2,921          2,921
   Direct loan acquisitions expenses                             865           865         1,566          1,566
   Depreciation and amortization                                 214           214           393            393
   Other operating expenses                                    1,036         1,069         1,789          1,822
                                                         -----------   -----------   -----------    -----------
     Total expenses                                            4,845         4,927         8,804          8,911
                                                         -----------   -----------   -----------    -----------
Income (loss) before income taxes                              1,717           325         3,347           (862)
Income taxes (benefit)                                           658           125         1,289           (322)
                                                         -----------   -----------   -----------    -----------
    Net income (loss) before taxes from reorganization
      of partnership                                           1,059           200         2,058           (530)
Income taxes from reorganization of partnership                   --            --         4,500          5,416
                                                         -----------   -----------   -----------    -----------
    Net income (loss)                                          1,059           200        (2,422)        (5,946)
Preferred stock dividends                                         41            41            67             67
                                                         -----------   -----------   -----------    -----------
Loss attributed to common shareholders                   $     1,018   $       159        (2,509)        (6,013)
                                                         ===========   ===========   ===========    ===========

PER SHARE DATA:
Loss per common share - basic                            $      0.15   $      0.02         (0.36)         (0.86)
Loss per common share - diluted                          $      0.15   $      0.02         (0.36)         (0.86)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic                                                          7,026         7,026         6,976          6,976
Diluted                                                        7,026         7,026         6,976          6,976
</TABLE>


                                       11
<PAGE>   12
                       NATIONAL AUTO FINANCE COMPANY, INC.
                          Notes to Financial Statements
                                  June 30, 1998
                                   (unaudited)

(3)   RETAINED INTEREST IN SECURITIZATIONS

      Retained Interest in Securitizations were as follows at June 30, 1998 and
December 31, 1997:

<TABLE>
<CAPTION>
                                                       June 30,        December 31,
                                                         1998              1997
                                                     -----------       -----------
                                                         (dollars in thousands)
<S>                                                  <C>               <C>        
           Spread Accounts                           $    30,590       $    14,846
           Excess Spread Receivable ("ESR")               20,837            16,723
                                                     -----------       -----------
                                                     $    51,427       $    31,569
                                                     ===========       ===========
</TABLE>

      Assumptions used to value the Retained Interests in Securitizations at 
      June 30, 1998 and December 31, 1997 were as follows:

<TABLE>
<CAPTION>
                                                                   June 30,           December 31,
                                                                     1998                 1997
                                                                   --------           ------------
<S>                                                                <C>                <C>   
           Weighted average cumulative net loss rate                  12.88%               12.88%
           Weighted average cumulative prepayment rate                22.51%               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                    19.07%               19.01%
           Weighted average yield on bonds and notes
             held by securitization investors                          6.13%                6.15%
</TABLE>

      The Company has historically funded its purchases of motor vehicle retail
      installment sale contracts ("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, which are held by the Company) 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 


                                       12
<PAGE>   13
                       NATIONAL AUTO FINANCE COMPANY, INC.
                          Notes to Financial Statements
                                  June 30, 1998
                                   (unaudited)

      interest on, the $85.2 million of the securities issued in that
      transaction is insured by payment guarantees by Financial Security
      Assurance Inc. ("FSA"), and 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.

      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 currently 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 the discount from the face amount of
      a Loan at which the Company is willing to purchase the Loan from an
      automobile dealer ("Dealer Discount") related to the principal balance of
      Loans. As of June 30, 1998, the Company had a 14.18% equity investment in
      the Revolving Securitization.

      In the event delinquencies or losses on the Loans exceed certain levels in
      the Permanent Securitizations ("Trigger Events"), the terms of the
      Permanent 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 during the second 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. No performance
      test has been violated in the Permanent Securitization formed in January
      1998 and no additional cash has been required to be deposited into its
      related Spread Account. In the event that a performance test is violated
      in the future, an additional deposit will be required to increase the
      1998-1 Trust Spread Account to a total of 9% of the outstanding principal
      balance from the future cash flows of all the Permanent Securitizations.

      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
      an agreement with BankBoston, N.A. (the "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 


                                       13
<PAGE>   14
                       NATIONAL AUTO FINANCE COMPANY, INC.
                          Notes to Financial Statements
                                  June 30, 1998
                                   (unaudited)

      issued 100,000 shares of the Company's common stock, par value $0.01 per
      share (the "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. As of June 30, 1998, the Company was not in violation of
      any 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. As of June 30, 1998, the
      Company is in the process of seeking a waiver of such covenant breaches
      and modification of certain terms of the Master Trust to continue
      availability under the Master Trust. If such a waiver is not granted, the
      Company may cease receiving the cash flows the Company would otherwise
      ordinarily receive from the Master Trust and the Company may be terminated
      as a servicer of the Loans held in the Master Trust. Notwithstanding such
      covenant violations, the company has been allowed to continue borrowing
      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 six months ended June 30, 1998 and 1997, the following
      activity took place with respect to securitizations:

<TABLE>
<CAPTION>
                                                                 June 30,       June 30,
                                                                   1998           1997
                                                                ---------       --------
                                                                  (dollars in thousands)
<S>                                                             <C>             <C>     
      Principal balance of Loans sold......................     $  73,475       $ 75,005
                                                                =========       ========
      Securitization related income........................     $   2,915       $  1,375
                                                                =========       ========
      Remaining principal balance of Loans sold since
        Inception, as of period end........................     $ 260,888       $127,094
                                                                =========       ========
      Weighted average coupon rate on Loans
          sold during the period...........................         19.35%         19.54%
                                                                =========       ========
</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 Company's 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


                                       14
<PAGE>   15
                       NATIONAL AUTO FINANCE COMPANY, INC.
                          Notes to Financial Statements
                                  June 30, 1998
                                   (unaudited)

      $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%.

      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 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.

(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 six months ended June 30, 1998 and 1997 was $77,000 and
      $123,000, respectively.

(6)   NOTES PAYABLE

      The Company has entered into a $1.5 million 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% (8.16% at June 30, 1998),
      payable monthly. The principal amount of the FUNB Note is payable monthly
      beginning March 1998 and matures March 2001. As of June 30, 1998, the
      principal amount owed by the Company was $877,000. Interest expense
      recognized for this debt for the three and six months ended June 30, 1998
      was $20,000 and $41,000, respectively.

      As of September 29, 1997, the Company entered into the BankBoston
      Agreement, a three year, $10.0 million revolving credit facility secured
      by Loans. The Company repaid the remaining balance in April 1998 and has
      terminated the BankBoston Agreement. Interest expense recognized for this
      debt for the six month period ended June 30, 1998 was $17,500.

      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 June 30, 1998, the
      principal amount owed by the Company was $324,000. Interest expense
      recognized for this debt for the three and six months ended June 30, 1998
      was $5,900 and 11,300, respectively.

(7)   STOCK OPTION PLAN

      During the first six months of 1998, stock options with respect to an
      aggregate of 232,500 shares of Common Stock were granted to key employees
      and employees of affiliates of the Company at the fair market value at the
      date of grant. The amount of shares granted in excess of the shares
      available under the 1996 Share Incentive Plan and the granting of options
      to employees of affiliates of the Company are subject to shareholder
      approval at the next Annual Meeting.

(8)   RECENT EVENTS

      As previously described in the Company's Form 8-K filed on May 20, 1998,
      Gary L. Shapiro resigned as Chairman and Chief Executive Officer of the
      Company, and Keith B. Stein was appointed interim Chief Executive Officer
      effective May 15, 1998. Mr. Shapiro remains a director of the 


                                       15
<PAGE>   16
                       NATIONAL AUTO FINANCE COMPANY, INC.
                          Notes to Financial Statements
                                  June 30, 1998
                                   (unaudited)

      Company. Effective June 1, 1998, Mr. Stein entered into a three-year
      employment agreement with the Company, assuming the full time position of
      Chief Executive Officer. On June 12, 1998, the Company, National Financial
      Companies LLC ("NFC") and certain NFC affiliates entered into an agreement
      terminating the Company's management and services agreements with NFC.

      As previously described in the Company's Form 8-K filed on June 9, 1998,
      Roy E. Tipton resigned as President and as a director of the Company
      effective June 5, 1998. In connection with Mr. Tipton's resignation, the
      Company entered into a severance agreement with Mr. Tipton that resulted
      in Mr. Tipton's employment agreement with the Company being terminated and
      Mr. Tipton receiving a $125,000 lump sum severance payment.

      On June 19, 1998, the Company converted its Servicing Portfolio computer
      data from its outside servicer's computer systems to its new Consumer Loan
      Asset Servicing System ("CLASS") developed by BNI, Inc. ("BNI"). The CLASS
      system is composed of separate modules integrating loan origination, loan
      servicing, operational accounting, portfolio performance analysis and loan
      securitization functions. The installation of certain modules of the CLASS
      system is still ongoing, and a number of the modules are still not
      completed or fully functioning. The continuing delays in completing this
      installation has had and may continue to have a negative impact on the
      performance of the Loans for which the Company performs servicing and
      collections (the "Servicing Portfolio"). 

      A company controlled by Gary L. Shapiro, the Company's former Chairman
      and Chief Executive Officer and a continuing director of the Company, has
      acquired an option to purchase a controlling stock ownership interest in
      BNI and a related company, also controlled by Gary L. Shapiro, has made a
      loan to BNI.

(9)   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 August 14,
      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 also is in discussions with First Union to continue Loan
      financing availability under its Master Trust facility warehouse line. As
      of August 14, 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 $2.1 million as of August 11, 1998.
      Additionally, the Company and the automobile finance division of First
      Union ("First Union Auto Finance") are still in discussions regarding
      First Union Auto Finance's renewal or non-renewal of its referral
      agreement with the Company for an additional year. Currently, the referral
      agreement expires on April 15, 2000.

      The Company continues to undergo a restructuring of its operations,
      including, without limitation, the reduction of personnel, the
      modification of its underwriting criteria and product offerings, and the
      increasing of 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.
      As part of that restructuring, the Company is consolidating all operations
      in Jacksonville, Florida. Accordingly, by August 31, 1998, the Company
      intends to move all of its loan origination activities to its Jacksonville
      facility. Further, by October 30, 1998, the Company intends to transition
      all of its accounting, legal, executive and remaining activities to its
      Jacksonville facility.

      On August 12, 1998, The Nasdaq Stock Market, Inc. ("NASDAQ") advised the
      Company that unless the closing bid price of the Company's common stock
      allows for the maintenance of a greater than $5 million public float, for
      at least 10 consecutive trading days during the period ending on November
      13, 1998, the Company's Common Stock will be delisted on November 17,
      1998. In addition, the NASDAQ'S letter identifies other listing standards
      that the Company is not satisfying, any one of which is a possible basis
      for delisting, but none of which NASDAQ has specifically identified as the
      current basis for a potential delisting.


                                       16
<PAGE>   17

                       NATIONAL AUTO FINANCE COMPANY, INC.
           Management's Discussion and Analysis of Financial Condition
                           and Results of Operations
                                  June 30, 1998


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

     During July 1998, the Company restated its financial statements for each of
the first, second and third quarters of 1997. The discussion below reflects the
restated amounts for 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 June 30, 1998 compared to
December 31, 1997 and its results of operations for the three and six months
ended June 30, 1998 and the restated three and six months ended June 30, 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
9.00% as of June 30, 1997 to 12.88% as of June 30, 1998, increased the discount
rate applied to estimated cash flows from the securitizations from 11.00% at
June 30, 1997 to 14.00% at June 30, 1998, and increased assumptions related to
levels of cash required to be maintained in spread 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.

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. These credit enhancements include, among other things,
funding and maintaining the Cash Spread Accounts and maintaining the
Over-Collateralization Accounts. The Cash Spread Accounts are funded through
initial cash deposits by the Company, plus a portion of the excess cash flows
from the Loans (that is, the difference between cash received by the relevant
trust and its interest and principal payments on the asset-backed securities and
trust expenses). Once the funds in the Cash Spread Accounts meet specified
levels (which may be increased if the performance of the relevant Loan pool
deteriorates), any subsequent excess cash flows thereafter will be released to
the Company on a monthly basis. Any remaining cash in the Cash Spread Accounts
after the asset-backed securities have been paid in full also will be released
to 

                                       17
<PAGE>   18
                       NATIONAL AUTO FINANCE COMPANY, INC.
           Management's Discussion and Analysis of Financial Condition
                           and Results of Operations
                                  June 30, 1998

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 and six months ended June 30, 1998 and 1997, the
following activity took place with respect to securitizations:

<TABLE>
<CAPTION>
                                                              Three Months Ended              Six Months Ended
                                                                   June 30,                        June 30,
                                                          --------------------------     ----------------------------
                                                              1998           1997            1998             1997
                                                          -----------    -----------     ------------     -----------
                                                                          (restated)                       (restated)

                                                                            (dollars in thousands)
<S>                                                       <C>            <C>             <C>              <C>        
Number of Loans purchased............................           2,577          3,831            6,663           6,709
Principal balance of Loans purchased.................     $    34,723    $    43,777     $     83,714     $    79,549
Principal amount of Loans funded (1).................     $    33,682    $    42,600     $     81,104     $    77,509
Securitization related income .......................     $     1,380    $     4,119     $      1,454     $     6,171
Servicing income.....................................     $     1,643    $       838     $      2,915     $     1,375
</TABLE>

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

(1)   Amount funded represents the price at which the Company purchases a Loan
      from an automobile dealer ("Dealer") or third party originator
      ("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 JUNE 30, 1998, COMPARED TO THE THREE MONTH
PERIOD ENDED JUNE 30, 1997.

Income from Operations

      The Company reported a net loss of $4.3 million attributed to common
shareholders for the three month period ended June 30, 1998, compared to net
income of $159,000 attributed to common shareholders for the three month period
ended June 30, 1997.

Securitization Related Income

      The Company's Loan purchasing volume declined significantly during the
three month period ended June 30, 1998 compared to the three month period ended
June 30, 1997. This decline in volume was primarily due to the Company's
decision to temporarily curtail Loan originations to allow the Company to
preserve its cash while undertaking a debt and operational restructuring 
process, in light of the losses recently incurred by the Company. The Company
purchased 2,577 Loans, having a principal balance of $34.7 million, during the
three month period ended June 30, 1998, compared to 3,831 Loans, having a
principal balance of $43.8 million, for the three months ended June 30, 1997.
These Loan purchases consisted of 1,810 Loans purchased from Dealers ($24.5
million principal balance) and 767 Loans purchased from Third-Party Originators
($10.2 million principal balance) during the three month period ended June 30,
1998. This compares to 2,290 Loans purchased from Dealers ($31.2 million
principal balance) and 1,541 Loans purchased from Third-Party Originators ($12.6
million principal balance) during the three month period ended June 30, 1997.
For the three month periods ended June 30, 1998 and 1997, the Company recognized
securitization related income of $1.4 million and $4.1 million, respectively.
This decrease was impacted by a 20.7% decrease in the dollar volume of Loans
purchased during the three month period ended June 30, 1998, compared to the
three month period ended June 30, 1997. Additionally, securitization income
decreased due to the increase in the cumulative net loss estimate from 9.00% as
of June 30, 1997 to 12.88% as of June 30, 1998. In addition, in the second
quarter of 1998, the Company was required to provide additional credit
enhancements to the Master Trust in the amount of $5.2 million due to increased
production volume funded. As part of the evaluation of the Retained Interest in
Securitizations, the cash deposits were discounted using a rate of 14.00%, which
reduced the securitization income reported for the second quarter.

      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.


                                       18
<PAGE>   19
                       NATIONAL AUTO FINANCE COMPANY, INC.
           Management's Discussion and Analysis of Financial Condition
                           and Results of Operations
                                  June 30, 1998

Servicing Income

      The Company receives a servicing fee in cash of approximately 4.0% of the
principal amount of the Loans sold to the Master Trust and 2.0% for the
principal amount of the Loans subsequently sold to the Permanent
Securitizations, which typically offsets actual servicing expenses incurred by
the Company. This income is recognized as received. Servicing income for the
three month periods ended June 30, 1998 and 1997 was $1.6 million and $838,000,
respectively. The growth in servicing income was attributable to the increase in
the size of the Servicing Portfolio.

Total Expenses

      The Company reported total expenses for the three month periods ended June
30, 1998 and 1997 of $8.0 million and $4.9 million, respectively. These expenses
consisted primarily of servicing expense, interest expense on long-term
indebtedness including the Company's Senior Subordinated Notes, salaries and
employee benefits and direct Loan acquisition 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 June 30,
1998 and 1997 were $1.2 million and $763,000, respectively. Servicing costs
consisted primarily of a combination of internal servicing expenses and fees to
an outside servicer for each active Loan not serviced in-house. Additionally,
the Company incurred 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 June 30, 1998 and 1997 were $760,000 and
$609,000, respectively. The increase in servicing expenses primarily reflected
the growth in the Servicing Portfolio. The Company's Servicing Portfolio grew
from $157.1 million, representing 14,392 outstanding Loans as of June 30, 1997,
to $260.9 million, representing 24,827 outstanding Loans, as of June 30, 1998.

      The Company assumed responsibility for all collections and other servicing
of its Loans and Management Information Systems ("MIS") operations on June 20,
1998. For the three months ended June 30, 1998, internal servicing expenses
consisted primarily of salaries and other operating expenses totaling $1.1
million. The Company initially commenced operations in its own internal
servicing center during July 1997, which had 112 employees as of June 30, 1998.
Internal servicing expenses will continue to grow as the transition to in-house
servicing continues.

      Interest expense for the three month periods ended June 30, 1998 and 1997
was $2.1 million and $345,000, respectively. The increase in interest expense
resulted from the increases in the long-term debt balances of the Company.

      Direct Loan acquisition expenses for the three month periods ended June
30, 1998 and 1997 were $573,000 and $865,000, respectively. These expenses
consisted primarily of Dealer incentives, fees paid to strategic alliance
partners, broker fees, credit information fees and telephone expenses. The
expenses declined due to the reduction in Loan originations during the three
months ended June 30, 1998.


                                       19
<PAGE>   20
                       NATIONAL AUTO FINANCE COMPANY, INC.
           Management's Discussion and Analysis of Financial Condition
                           and Results of Operations
                                  June 30, 1998

SIX MONTH PERIOD ENDED JUNE 30, 1998, AS COMPARED TO THE SIX MONTH PERIOD ENDED
JUNE 30, 1997.

Income from Operation

      The Company reported a net loss for the six month period ended June 30,
1998 of $9.4 million as compared to a net loss of $5.9 million for the six month
period ended June 30, 1997.

Securitization Related Income

      The Company's Loan purchasing activity during the six month period ended
June 30, 1998 was comparable to the six month period ended June 30, 1997. The
Company purchased 4,632 or $62.2 million of principal amount of Loans from
Dealers and $21.5 million or 2,031 Loans were acquired through the Company's
Portfolio Acquisition Program during the six month period ended June 30, 1998,
100% of which were sold to the Master Trust. This compares to 4,407 Loans or
$59.3 million of principal amount of Loans purchased from Dealers and $20.3
million or 2,302 Loans acquired through the Company's Portfolio Acquisition
Program during the six month period ended June 30, 1997.

      During the six month period ended June 30, 1998, the Company was required
to provide additional credit enhancements to the Master Trust in the amount of
$20.5 million due to the origination of new Loans and the increase in the
required level of collateralization. As part of the evaluation of the Retained
Interest in Securitizations, the cash deposits were discounted using a rate of
14.00%, which reduced the securitization income reported for the second quarter.

      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 would 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 six
month periods ended June 30, 1998 and 1997 was $2.9 million and $1.4 million,
respectively. The growth in servicing income was attributable to the increase in
the size of the Servicing Portfolio.

Total Expenses

      The Company reported operating expenses of $15.2 million for the six month
period ended June 30, 1998, as compared to $8.9 million for the six month period
ended June 30, 1997. These expenses consisted primarily of servicing costs,
subordinated note interest and personnel expenses. Operating expenses, as a
percentage of Loans purchased, increased from 11.2% as of June 30, 1997 to 18.2%
as of June 30, 1998.

      Servicing expenses for the six month period ended June 30, 1998 were $4.4
million as compared to $1.4 million for the six month period ended June 30,
1997. This represents an increase in annualized servicing expenses as a
percentage of average Loans serviced, from 1.94% as of June 30, 1997 to 3.71% as
of June 30, 1998. Servicing fees paid to the Company's external servicer for the
six month period ended June 30, 1998 were $1.6 million as compared to $1.1
million for the six month period ended June 30, 1997. The increase in expenses
primarily reflects the growth in the portfolio serviced by the Company and was
impacted by the start-up and overlap by internal servicing and fees incurred
from its external servicer.

      The Company assumed responsibility for collecting all of its Loans in July
1997, and assumed responsibility for all other servicing of its Loans and MIS
operations on June 20, 1998. For the six month period ended June 30, 1998,
internal servicing expenses consisted primarily of salaries and other operating
expenses totaling $1.9 million.

      Interest expense for the six month period ended June 30, 1998 was $3.6
million, as compared to $760,000 for the six month period ended June 30, 1997.
This increase is a result of the interest expense incurred with respect to the
Company's Senior Subordinated Notes.


                                       20
<PAGE>   21
                       NATIONAL AUTO FINANCE COMPANY, INC.
           Management's Discussion and Analysis of Financial Condition
                           and Results of Operations
                                  June 30, 1998

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 Company's
securitized 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 June 30,
                                                          --------------------------
                                                              1998           1997
                                                          -----------    -----------
                                                             (dollars in thousands)
<S>                                                       <C>            <C>        
Average Servicing Portfolio during period...........      $   249,376    $   142,105
Gross charge-offs...................................           20,683          7,186
Liquidation proceeds from repossessed assets........            9,949          3,351
                                                          -----------    -----------
Net charge-offs.....................................      $    10,734    $     3,835
                                                          ===========    ===========
Net charge-offs as a percentage of average Servicing
    Portfolio (annualized) .........................             8.60%          5.40%
                                                          ===========    ===========
</TABLE>

      The Company's annualized net charge-offs have significantly increased
during the second quarter because of the Company's outside servicer's
substandard performance once it notified the Company in April 1998 that it would
be removing the Company's Servicing Portfolio data on June 19, 1998 from its
computer systems and due to the delays experienced by the Company in installing
the CLASS system previously described in Note 8.

      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.

      On June 19, 1998, the Company converted its Servicing Portfolio computer
data from its outside servicer's computer systems to its new Consumer Loan Asset
Backed Security System ("CLASS") developed by BNI, Inc. ("BNI"). The CLASS
system is composed of separate modules integrating loan origination, loan
servicing, operational accounting, portfolio performance analysis and loan
securitization functions. The installation of certain modules of the CLASS
system is still ongoing, and a number of the modules are still not completed or
fully functioning. The continuing delays in completing this installation has had
and may continue to have a negative impact on the performance of the Loans for
which the Company performs servicing and collections (the "Servicing
Portfolio"). 

      A company controlled by Gary L. Shapiro, the Company's former Chairman and
Chief Executive Officer and a continuing director of the Company, has acquired
an option to purchase a controlling stock ownership interest in BNI and a
related company, also controlled by Gary L. Shapiro, has made a loan to BNI.

      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.


                                       21
<PAGE>   22
                       NATIONAL AUTO FINANCE COMPANY, INC.
           Management's Discussion and Analysis of Financial Condition
                           and Results of Operations
                                  June 30, 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 June 30,
                                                          ------------------------
                                                            1998            1997
                                                          --------       ---------
                                                           (dollars in thousands)
<S>                                                       <C>            <C>      
Period of delinquency:
   31 to 60 days......................................    $ 17,432       $  10,232
   61 to 90 days......................................       3,528           3,191
   91 days or more....................................       2,786           2,420
                                                          --------       ---------
Total delinquencies...................................    $ 23,746       $  15,843
                                                          ========       =========
Total delinquencies as a percentage of the
   Servicing Portfolio................................        9.10%          10.08%
Principal balance of Loans related to repossession
   inventory..........................................    $  5,752       $   2,919
Repossession inventory as a percentage of the 
   ending Servicing Portfolio.........................        2.20%           1.90%
</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.


                                       22
<PAGE>   23
                       NATIONAL AUTO FINANCE COMPANY, INC.
           Management's Discussion and Analysis of Financial Condition
                           and Results of Operations
                                  June 30, 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 March 31, 1998, and includes loss data through June
30, 1998:

<TABLE>
<CAPTION>
         4Q      1Q      2Q       3Q      4Q      1Q       2Q      3Q     4Q     1Q     2Q     3Q     4Q     1Q
        1994    1995    1995     1995    1995    1996     1996    1996   1996   1997   1997   1997   1997   1998
        ----    ----    ----     ----    ----    ----     ----    ----   ----   ----   ----   ----   ----   ----
<S>     <C>     <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%  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%  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%  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%  0.02%
    5   0.00%   0.07%   0.00%    0.19%   0.21%   0.10%    0.10%   0.16%  0.00%  0.06%  0.43%  0.07%  0.06%  0.02%
    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%  0.13%
    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%  0.44%
    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%  0.78%
    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%  0.97%
   10   0.51%   1.70%   2.40%    2.35%   2.28%   1.81%    2.70%   2.59%  2.55%  2.34%  3.26%  1.69%
   11   1.08%   1.73%   2.62%    2.71%   2.40%   2.00%    3.29%   3.36%  3.40%  2.84%  3.51%  2.16%
   12   1.36%   2.52%   3.14%    3.11%   3.08%   2.43%    4.34%   3.65%  3.69%  3.45%  4.31%  2.50%
   13   1.75%   3.04%   3.37%    3.60%   3.48%   3.35%    5.19%   4.47%  4.02%  3.95%  5.10%
   14   1.72%   3.39%   3.71%    3.58%   3.69%   3.60%    5.58%   5.04%  4.53%  4.21%  5.76%
   15   3.12%   3.90%   3.99%    4.13%   4.24%   4.42%    6.00%   5.38%  5.12%  4.86%  6.24%
   16   3.21%   4.20%   4.27%    4.60%   4.58%   4.71%    6.50%   5.95%  5.49%  5.46%
   17   3.80%   4.52%   4.49%    4.98%   5.36%   5.38%    6.89%   6.37%  5.89%  6.27%
   18   4.45%   4.70%   5.01%    5.14%   5.52%   5.80%    7.19%   6.84%  6.48%  6.74%
   19   4.55%   4.94%   5.35%    5.49%   6.09%   6.68%    7.52%   7.32%  7.06%
   20   4.91%   5.18%   5.75%    5.96%   6.43%   6.95%    7.85%   8.13%  7.87%
   21   4.91%   5.77%   6.13%    6.46%   6.65%   7.16%    8.25%   8.58%  8.24%
   22   5.05%   5.75%   6.84%    6.76%   7.10%   7.60%    8.47%   8.97%
   23   5.05%   6.24%   7.44%    7.02%   7.51%   8.09%    9.35%   9.52%
   24   5.79%   6.34%   7.75%    7.10%   8.06%   8.24%    9.81%  10.05%
   25   5.78%   7.01%   8.28%    7.78%   8.34%   8.32%   10.35%
   26   6.20%   7.30%   8.52%    8.37%   8.62%   8.71%   10.61%
   27   6.80%   7.65%   8.66%    8.63%   8.82%   9.12%   11.02%
   28   7.15%   8.00%   9.08%    8.71%   8.97%   9.36%
   29   7.49%   9.02%   9.31%    8.86%   9.30%   9.57%
   30   8.06%   9.15%   9.36%    8.92%   9.98%  10.14%
   31   8.23%   9.73%   9.57%    9.06%  10.28%
   32   9.07%   9.90%   9.60%    9.81%  10.55%
   33   9.07%  10.08%   9.89%   10.14%  10.97%
   34   9.61%  10.07%   9.96%   10.40%
   35   9.89%  10.28%  10.33%   10.54%
   36  10.38%  10.59%  10.58%   10.69%
   37  11.44%  10.81%  10.82%
   38  11.48%  11.15%  10.97%
   39  11.81%  11.52%  11.02%
   40  11.84%  11.55%
   41  11.87%  11.58%
   42  12.22%  11.62%
   43  12.31%
   44  12.42%
   45  12.48%
</TABLE>


                                       23
<PAGE>   24
                       NATIONAL AUTO FINANCE COMPANY, INC.
           Management's Discussion and Analysis of Financial Condition
                           and Results of Operations
                                  June 30, 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 initial public offering and
subsequent private issuances of Common Stock.

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

      Net cash used in operating activities increased by $14.6 million from
$13.8 million for the six month period ended June 30, 1997 to $28.4 million for
the six month period ended June 30, 1998, principally due to increased operating
expenses, the change in the credit enhancement requirements of the Company's
securitization facilities and the increase in the volume of Loans purchased.
Operating expenses were impacted by the start-up and overlap of costs by
internal servicing and fees incurred from its external servicer.

      Net cash used in investing activities increased from $593,000 for the six
month period ended June 30, 1997, to $1.7 million for the six month period ended
June 30, 1998. This increase is due to the purchase of computers, data systems
and furniture for the Jacksonville facility.

      Net cash provided by financing activities increased by $6.6 million from
$12.2 million for the six month period ended June 30, 1997 to $18.8 million for
the six month period ended June 30, 1998. Such increase was primarily the result
of the proceeds received from the Company's sale of the Senior Subordinated
Notes. In addition to net operating losses of $9.4 million, the Company funded
deposits to Spread Accounts totaling $22.0 million.

      The Company is currently 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 June 30, 1998, the
Company had a 14.18% equity investment in the Revolving Securitization.

      As of June 30, 1998, the Company retained approximately $20.8 million of
ESRs, approximately $15.3 million of Cash Spread Accounts and approximately
$15.3 million of Over-Collateralization Accounts, which combined represent 
the $51.4 million shown on the balance sheet as Retained Interest in
Securitizations, representing 69.2% 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 June 30, 1998, the principal amount owed by the Company on the
Junior Subordinated Notes was approximately $2.0 million (including $38,703 of
accrued interest), which bear interest at an annual rate of 8%, 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 independent auditors' report for the fiscal year ended
December 31, 1997 contained a going concern qualification. Because of the going
concern qualification and the concomitant likelihood that such a qualification
will make it difficult for the Company to raise additional capital in the
foreseeable future, the Company is developing a business plan (the "Plan").
Although not yet fully developed, the Plan likely will consist of a reduction
in the Company's origination of loans from previously-projected levels and the
emphasis of the Company's use of its servicing capabilities to provide loan
servicing to third parties. Third-party servicing should result in additional
cash flow to the Company and be particularly cost effective because the Company
already has in place much of the infrastructure necessary to support such
servicing. Further, as part of the Plan, the Company has reduced and will
continue to reduce corporate overhead, including but not limited to the planned
closing of the Company's Boca Raton offices by October 31, 1998. The Company
estimates that the net cost savings associated with its new Plan, when
implemented, may result in savings of approximately $5 million to $8 million 
annually. Moreover, unlike the past, the Company is now attempting to collect
late fees on past due Loans, as well as deficiency balances on charged-off
Loans.

      Further, 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.


                                       24
<PAGE>   25
                       NATIONAL AUTO FINANCE COMPANY, INC.
           Management's Discussion and Analysis of Financial Condition
                           and Results of Operations
                                  June 30, 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 9%
to 11% 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.

      During the second quarter of 1998, certain modified Management 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 $2.1 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 June 30, 1998, the entire $4.2
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 June 30, 1998:

<TABLE>
<CAPTION>
                        Delinquency Test                   Default Test                    Loss Test
                 ------------------------------   -------------------------------  ------------------------------
                 Actual   Maintenance Insurance   Actual   Maintenance  Insurance  Actual  Maintenance  Insurance
                 ------   ----------- ---------   ------   -----------  ---------  ------  -----------  ---------
<S>              <C>      <C>         <C>         <C>      <C>          <C>        <C>     <C>          <C>   
         95-1     10.54%      8.25%     11.00%     15.26%     14.00%      17.00%    5.00%     8.00%      10.00%
         96-1     10.95       8.25      11.00      14.77      18.00       25.00    10.01      8.00       11.00
         97-1      9.82       8.25      11.00      14.54      18.00       25.00     7.66      8.00       11.00
         98-1      7.34       8.25      11.00      14.10      18.00       25.00     3.32      8.00       11.00
</TABLE>


                                       25
<PAGE>   26
                       NATIONAL AUTO FINANCE COMPANY, INC.
           Management's Discussion and Analysis of Financial Condition
                           and Results of Operations
                                  June 30, 1998

      The modified performance test levels for the 95-1 Trust decreased in June
1998 to: (i) 8.25% for the delinquency maintenance test and to 11.00% for the
delinquency insurance test; (ii) 14.00% for the default maintenance test and to
17.00% for the default insurance test; and (iii) 8.00% for the loss maintenance
test and to 10.00% for the loss insurance test. The modified performance test
levels for the 96-1 Trust decreased in June 1998 to: (i) 8.25% for the
delinquency maintenance test and to 11.00% for the delinquency insurance test;
(ii) to 18.00% in July 1998 for the default maintenance test and to 25.00% for
the default insurance test; and (iii) 8.00% in July 1998 for the loss
maintenance test and to 11.00% 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 June 30, 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.

      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. Assuming the payment of Senior Subordinated Notes are not
accelerated, the Company believes cash currently on hand should be sufficient to
meet the Company's cash requirements and to fund its operations through the
second quarter of 1999. Thereafter, the Company may 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.

YEAR 2000

      The Company is in the process of installing in its Boca Raton, Florida and
Jacksonville, Florida facilities the CLASS system for the underwriting and
servicing of its Loan portfolio. CLASS is a fully-integrated finance company
software platform composed of separate modules integrating loan origination,
loan servicing, operational accounting, portfolio performance analysis and loan
securitization functions. The Company believes, and the software developer of
CLASS has represented to the Company, that the CLASS software platform is year
2000 compliant. The Company is also in the process of installing a financial
accounting software package, which the Company believes to be Year 2000
compliant. Once the CLASS system and the financial accounting software package
are fully installed, the Company believes that all of its computer systems will
be year 2000 compliant. There can be no assurance, however, that software
incompatibility with the year 2000 on the part of the Company or any of its
significant suppliers will not have a material adverse effect on the Company,
and a plan for dealing with such incompatibility has not yet been developed by
the Company. The Company intends to develop such a contingency plan by the end
of the third quarter of 1998.


                                       26
<PAGE>   27
--------------------------------------------------------------------------------
PART II - Other Information
--------------------------------------------------------------------------------


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

      a)    Exhibits

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

10.1       Employment Agreement of Keith B. Stein      Filed with this document

10.2       Employment Agreement of Willaim G. Magro    Filed with this document

10.3       Employment Agreement of Joel B. Ronkin      Filed with this document

10.4       Employment Agreement of Thomas Costanza     Filed with this document

10.5       Employment Agreement of Martin J. Mattone   Filed with this document

10.6       Employment Agreement of James E. Shuler     Filed with this document

10.7       Employment Agreement of Brent E. Wombolt    Filed with this document

11         Computation of Earnings                     Filed with this document
           Per Common Share

27         Financial Data Schedule                     Filed with this document

      b)    Reports on Form 8-K

      On April 16, 1998, the Company filed a Form 8-K announcing the Company's
      results for the fiscal year ended 1997 and the completion of a $20 million
      private placement.

      On May 1, 1998, the Company filed a Form 8-K announcing the Company's
      strategic restructuring and the filing of its Annual Report on Form 10-K,
      which includes a qualified opinion from the Company's former auditor, KPMG
      Peat Marwick LLP ("KPMG").

      On May 20, 1998, the Company filed a Form 8-K announcing the Company's
      first quarter results, the resignation of the Company's Chairman and Chief
      Executive Officer, Gary L. Shapiro, the retention of BDO Seidman, LLP as
      the Company's auditor for fiscal 1998, and the termination of KPMG as the
      Company's auditor.

      On June 3, 1998, the Company filed a Form 8-K describing certain
      disagreements between the Company and its former auditor, KPMG.

      On June 9, 1998, the Company filed a Form 8-K announcing the resignation
      of Roy E. Tipton as President and as a director of the Company.

      On June 17, 1998, the Company filed Amendment No. 1 to its Form 8-K,
      attaching a copy of KPMG's response to the Company's disclosure on Form
      8-K regarding certain disagreements between KPMG and the Company.

      On June 18, 1998, the Company filed a Form 8-K announcing the resignation
      of Stephen L. Gurba as a director of the Company.


                                       27
<PAGE>   28

                                   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:  August 14, 1998                  /s/ Keith B. Stein
                                        ----------------------------------------
                                        Keith B. Stein
                                        Vice Chairman, Chief Executive Officer 
                                        and Treasurer


                                       28
<PAGE>   29

                                  EXHIBIT INDEX


<TABLE>
<CAPTION>
EXHIBIT
NUMBER            DESCRIPTION
-------           -----------
<S>               <C>                                                     
10.1              Employment Agreement of Keith B. Stein

10.2              Employment Agreement of William G. Magro

10.3              Employment Agreement of Joel B. Ronkin

10.4              Employment Agreement of Thomas Costanza

10.5              Employment Agreement of Martin J. Mattone

10.6              Employment Agreement of James E. Shuler

10.7              Employment Agreement of Brent E. Wombolt

11                Computation of Earnings Per Common Share

27                Financial Data Schedule
</TABLE>