Declaring variables inside or outside of a loop

Question

Why does the following work fine?

String str;
while (condition) {
    str = calculateStr();
    .....
}

But this one is said to be dangerou

Answer 1

The str variable will be available and reserved some space in memory even after while executed below code.

 String str;
    while(condition){
        str = calculateStr();
        .....
    }

The str variable will not be available and also the memory will be released which was allocated for str variable in below code.

while(condition){
    String str = calculateStr();
    .....
}

If we followed the second one surely this will reduce our system memory and increase performance.