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There's a small possibility for side effects with both methods of using finasteride- though there haven't been many direct comparisons of the two. The chance of these side effects are very low, with under 5% of patients reporting any sort of side effect with oral finasteride. I'd only recommend trying topical finasteride if you experienced minor problems with oral finasteride.
Large scale randomized studies of topical finasteride have not been done. It appears in most studies of topical finasteride that serum DHT reduction is less than for oral finasteride (but very nuch dependent on the dose of topical finasteride chosen). The use of topical finasteride should correlate with fewer and less severe side effects. In my mind, men who are sensitive to reduction in DHT may still experience some degree of side effects, including sexual side effects. Overall, one should view topical finasteride as having a reduced chance of side effects but not completely devoid of side effects.
While topical finasteride is unlikely to cause sexual side effects, there is no evidence that topical finasteride has any effect on hair loss. And since topical finasteride is not regulated, there is no way of knowing the quality of the product.
The reports are that topical finasteride does not have the sexual side effects seen in 3% of men who take the oral finasteride at the 1mg dose