Okay I can't solve this problem just because I don't know enough about how the climate control system on my car works. That's what the internet is for though, right?

My blower fan works fine as long as I'm using the fan only. I can turn it all the way up to high/3 clicks and it runs smooth and blows air. It works fine with the heat on too. The problem is when I turn my AC knob on there is suddenly a terrible grinding/rattling sound from the fan that sounds like something got caught in it.

I've pretty much narrowed it down to the fan since the same thing happens when I turn the AC knob ON in my garage even with the engine turned OFF. So I know it isn't the compressor or anything like that. I just don't understand what is changing when I turn the AC on to cause that noise, when the fan is capable of running at full speed with no problem.

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1978 240D, Daily Driver

I wonder if one if one of the air flaps is coming apart.

Using standard AC setup, there should be a recirculate flap on the suction side of the blower that selects from inside or outside air. Try to find where this flap is and / or pull the blower if access is easy.

Another possibility is the fan never truly hits max speed unless the AC is on. In either case, oiling the motor with 10 weight oil is a good idea.