Generally speaking, do what is best for your site and your users. I mostly use text links, but some are image links so that they capture the users attention. Either way, search engines do understand them rather well.
However, where you have a choice and there is no solid case to use an image for a link, then I highly suggest using text links over image links. The reason is rather simple and fundamental. Anchor text is weighted higher than image alt text. I also rather suspect that image links break (at least in part) theme pyramids and headline read order which is really important. I did a search on the net and this seems to be the consensus on the forums. This consensus seems to go back a long way with MOZ too. What is strange to me is that there is less definitive statements made in blog articles and most of chatter seems to come from professionals in forum style answers to questions.
What seems to be important is the following:
- Use text links for navigation.
- Make sure that image links have similar alt text as you would for a
text based link.
- Make sure that image links have an image name that supports that alt
- The URL/URI supports the link target. This is especially important for
- The title attribute for either a link or an image is said not to be
- Breadcrumbs, used where they apply, can support an image link
possibly supplanting the image link as the first link found on a page
for a resource if placed higher in the HTML code.