I am going to try making some body products at home (such as lotions). I want to avoid using chemical based preservatives in my products because I want them to be all natural. I've read that essential oils kill bacteria and molds etc so can I use them instead of regular preservatives since I want to put essential oils in them anyway? How do I use them this way?
You are correct, essential oils do have germ killing properties: they may be antibacterial, antifungal, antiviral, or all three, depending on the oil. However, essential oils do not make good preservatives in body/skin care products. Some essential oils are strongly antimicrobial when used in their fully-concentrated forms (i.e. when used undiluted), but when diluted to the extent that would be appropriate in a body lotion, for example, the essential oil would not be concentrated enough in the lotion to act as a preservative.
If you plan to sell or give away the body care products that you make, you should include appropriate preservatives to prevent the growth of bacteria and fungi. Any body care product with water or water-based ingredients in it has the potential for microbial growth. Only very small amounts of parabens, such as methyl paraben and propyl paraben, are needed for preserving your body lotion.
If you are just making body care products for yourself and don't want to include preservatives, try packaging them in small containers, so that you will use up the quantities in a shorter time and therefor reduce the chance of contamination and microbial growth, and keep them refrigerated to discourage microbial growth.