diff --git a/src/frontend/compiler.nim b/src/frontend/compiler.nim
index 7876561..636f6c1 100644
--- a/src/frontend/compiler.nim
+++ b/src/frontend/compiler.nim
@@ -1379,11 +1379,9 @@ proc endScope(self: Compiler) =
                     # Arguments to builtin functions become temporaries on the 
                     # stack and are popped automatically
                     continue
-                if not name.belongsTo.resolved or not name.belongsTo.isReal:
-                    # Function hasn't been compiled yet,
-                    # so we can't get rid of its arguments
-                    # (it may need them later)
-                    names.delete(names.high())
+                if name.belongsTo.valueType.isAuto:
+                    # Automatic functions do not materialize
+                    # at runtime, so their arguments don't either
                     continue
             inc(popCount)
             if not name.resolved:
@@ -2345,7 +2343,7 @@ proc getItemExpr(self: Compiler, node: GetItemExpr, compile: bool = true, matchi
 
 proc lambdaExpr(self: Compiler, node: LambdaExpr, compile: bool = true): Type {.discardable.} =
     ## Compiles lambda functions as expressions
-    result = Type(kind: Function, isLambda: true, fun: node, location: self.chunk.code.high())
+    result = Type(kind: Function, isLambda: true, fun: node, location: self.chunk.code.high(), compiled: true)
     self.beginScope()
     var constraints: seq[tuple[match: bool, kind: Type]] = @[]
     for gen in node.generics:
@@ -2362,11 +2360,12 @@ proc lambdaExpr(self: Compiler, node: LambdaExpr, compile: bool = true): Type {.
                             file: self.file))
         constraints = @[]
     var default: Expression
+    var name: Name
     var i = 0
     for argument in node.arguments:
         if self.names.high() > 16777215:
             self.error("cannot declare more than 16777215 variables at a time")
-        self.names.add(Name(depth: self.depth,
+        name = Name(depth: self.depth,
                             isPrivate: true,
                             owner: self.currentModule,
                             file: self.currentModule.file,
@@ -2379,14 +2378,16 @@ proc lambdaExpr(self: Compiler, node: LambdaExpr, compile: bool = true): Type {.
                             belongsTo: nil,  # TODO
                             kind: NameKind.Argument,
                             node: argument.name
-                    ))
+                    )
+        if compile:
+            self.names.add(name)
         if node.arguments.high() - node.defaults.high() <= node.arguments.high():
             # There's a default argument!
-            result.args.add((self.names[^1].ident.token.lexeme, self.names[^1].valueType, node.defaults[i]))
+            result.args.add((name.ident.token.lexeme, name.valueType, node.defaults[i]))
             inc(i)
         else:
             # This argument has no default
-            result.args.add((self.names[^1].ident.token.lexeme, self.names[^1].valueType, default))
+            result.args.add((name.ident.token.lexeme, name.valueType, default))
     # The function needs a return type too!
     if not node.returnType.isNil():
         result.returnType = self.inferOrError(node.returnType)
diff --git a/tests/functionObj.pn b/tests/functionObj.pn
index 302c9da..6d6bd11 100644
--- a/tests/functionObj.pn
+++ b/tests/functionObj.pn
@@ -1,5 +1,4 @@
 # Tests first class functions
-
 import std;
 
 
@@ -11,6 +10,6 @@ fn outer: fn (n: int): int {
 }
 
 
-var x = outer();
-print(x(50));   # 50
-print(outer()(1));  # 1
+var inner = outer();
+print(inner(20) == 20);
+print(outer()(5) == 5);
diff --git a/tests/varloop.pn b/tests/varloop.pn
new file mode 100644
index 0000000..7face7e
--- /dev/null
+++ b/tests/varloop.pn
@@ -0,0 +1,9 @@
+# Tests declaring a variable inside a loop
+import std;
+
+var x = 0;
+while x < 10 {
+    var _y = 10;
+    x = x + 1;
+}
+print(x == 10);
\ No newline at end of file