Lenders are overhauling their investment loan products in a bid to overcome investors' reluctance to borrow to buy shares and managed funds.Westpac's wealth management division, BT Financial Group, has launched what it is calling the "next generation" of geared equity investment products, including a loan secured by investment assets but with no margin call, and a protected loan that gives borrowers the flexibility to choose their level of capital protection.Commonwealth Bank is marketing a protected loan with similarly flexible features.Since the Australian equity bear market in 2008, margin loan balances have fallen from a peak of A$41.6 billion to the current level of $14.9 billion.Apart from the general lack of enthusiasm for sharemarket investing since then, two factors that have contributed to the decline in margin loan balances are borrowers' dislike of exposure to margin calls with conventional margin loans, and high interest rates on protected loans. In a standard protected loan arrangement the borrower is guaranteed a 100 per cent return of capital at maturity if the value of the assets purchased has fallen below the purchase price. Interest rates on these loans are high because they include the borrowing cost as well as the cost of the option the lender uses to provide the capital protection. A loan with 100 per cent capital protection has an interest rate of 12 or 13 per cent.The Australian Taxation Office does not allow the full interest rate expense of these loans to be claimed as a deduction, figuring that the part of the charge that represents the option cost is non-deductible.Westpac's new protected equity loan allows borrowers to set the protection level between 50 per cent and 100 per cent. The lower the protection is the lower the cost of capital protection.Borrowers can also agree to cap the level of potential capital appreciation at maturity. This will also lower the cost of capital protection.By bringing the cost of protected loans closer to the cost of standard margin loans, Westpac hopes to spark renewed interest in the product.Commonwealth Bank's protected loan also allows borrowers to adjust the level of protection, as well as the cap on capital appreciation.The head of business development for structured investments in Commonwealth Bank's institutional banking and markets division, Moghseen Jadwat, said these product developments were driven by the fact that "there is a fear of margin calls"."If we can deal with that we can reinvigorate the market," Jadwat said.Westpac's other new product is the BT Professional Investment Loan, which offers a loan secured against investment assets but has no margin loan. The borrower must choose from an approved list of diversified Australian equities and must accept lower gearing levels.In 2009, Leveraged Equities launched a similar product - an investment loan called Investment Funds Multiplier, which has a repayment plan in place of a margin loan.