I have been doing this for a while. I switched from reptile carpet to paper towels to this. So far I haven't had any problem. I'd say avoid the ones with strings, and as you said avoid scented obviously. They soak up pee really nice and they don't get pushed around like paper towels.
If there is some horrible problem associated with them I wouldn't know...
I was using a bath towel for a while. Everyone had warned about smell, but that was not an issue.
Finally, someone came along with a more serious warning - he knew of a snake that had gotten its mouth caught on a towel when going after food, and with the teeth being the way they are, the snake had no choice but to swallow it. It suffocated and died.
I am no longer using towels. For that reason, I would also suggest not using a pee pad.
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