The paper presents the concept of default interest from a legal and economic point of view with an exhaustive overview of the legal regulation of default interest currently in force. The legal rate of default interest in Croatian law is calculated as a sum of the reference rate and the prescribed percentage points, which is why special attention is paid to the concept of reference rate. Among discussed subjects of the paper are the regulation of reference rate in Croatian law and the role that the reference rate plays in the economic literature. The paper also provides an overview of the methods used for determining default interest rates from the founding of the Republic of Croatia to the present day. The aim of this paper is to assess the adequacy of the average rate on the balance of loans granted for a period longer than one year to non-financial companies in its role of the reference rate for determining the rate of default interest. The assessment of the adequacy of the average rate on loan balances is approached through a combination of legal and economic criteria. The structure of the average rate on loan balances is considered and a comparison with the economic concept of the reference rate is given. The adequacy of the average rate on loan balances is also interpreted in the context of its role in Croatian law, where it, in addition to punishing debtors who are late in settling financial obligations, participates as the first determinant for determining statutory rates of contractual interest and effective interest rates. Finally, the paper questions the appropriateness of general application of such rate for calculation of default interest in relations between all legal entities. It is concluded that the average rate on loan balances due to its maturity, structure and lack of active role in implementation of monetary policy strategies is not adequate in the role of the reference rate for determining the default interest rate.